Good day and thank you for standing by. Welcome to the Second Quarter 2024 Halliburton Earnings 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 David Coleman, Senior Director, Investor Relations. Please go ahead.

Hello, and thank you for joining the Halliburton second quarter 2024 conference call. We will make the 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, 2023, Form 10-Q for the quarter ended March 31, 2024, 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 second 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 solid second quarter results that demonstrated the strength of our international business and the differentiation of our North America service offerings. Here are the quarter highlights. We delivered total company revenue of $5.8 billion and operating margin of 18%. International revenue was $3.4 billion and grew 8% year-over-year, led by Latin America, which delivered a 10% increase. North America revenue was $2.5 billion, an 8% decrease year-over-year compared to a 12% decline in rig count over the same period. Our Drilling and Evaluation division and our Completion and Production division both demonstrated margin improvement year-over-year. Finally, during the second quarter we generated $1.1 billion of cash flow from operations and about $800 million of free cash flow and repurchased $250 million of our common stock. I'll begin our discussion with the international markets, where Halliburton's strategy of profitable growth delivered another solid quarter. International revenue grew 8% year-over-year, with growth demonstrated by each region. This marks the 12th consecutive quarter of year-on-year growth in our international business. As I look ahead for the remainder of this year, my outlook today is consistent with our expectations at the start of the year. I expect steady growth for Halliburton throughout the remainder of 2024. In our international markets, we see strong demand for Halliburton services, high activity levels, and equipment tightness across all major basins. We expect our international business to deliver about 10% revenue growth for the full year. I am pleased with the profitable growth we're seeing across our product lines. And today, I would like to highlight three specific ones in more detail. The first is our Landmark Software business. I recently attended our Landmark Forum, LIFE2024, in Athens, Greece. It is an annual event where we share our latest…

Thank you, Jeff, and good morning. Our Q2 reported net income per diluted share was $0.80. Total company revenue for the second quarter of 2024 was $5.8 billion, flat sequentially. Operating income was $1 billion, a sequential increase of 5%, and operating margin was 18%, a sequential increase of 69 basis points. Beginning with our Completion and Production division, revenue in Q2 was $3.4 billion, sequentially flat. Operating income was $723 million, up 5% when compared to Q1 2024, and operating income margin was 21%. These results were primarily driven by strong international completion and production performance, offsetting softer results in North America. In our Drilling and Evaluation division, revenue in Q2 was $2.4 billion, while operating income was $403 million, both sequentially flat from Q1 2024. Operating margin was 17%, a sequential increase of 20 basis points. These results reflect the strength of our global D&E business despite the roll-off of seasonal software sales in Q2 which affected every region. Now, let's move on to geographic results. Our Q2 international revenue increased 3% sequentially. Europe/Africa revenue in the second quarter of 2024 was $757 million, an increase of 4% sequentially. This increase was primarily driven by higher well construction activity and improved wireline activity in Norway, along with increased completion tool sales and higher stimulation activity in West Africa. Middle East Asia revenue in the second quarter of 2024 was $1.5 billion, an increase of 5% sequentially. This increase was primarily related to higher activity in the Middle East across multiple product lines and higher fluid services in Asia. Latin America revenue in the second quarter of 2024 was $1.1 billion, sequentially flat. In North America, revenue was $2.5 billion, representing a 3% decrease sequentially. This decline was primarily driven by decreased pressure pumping services in US land and…

Thanks, Eric. Here are a few key points I would like you to take away from our discussion today. I am pleased with our 18% margins and about $800 million of free cash flow in the second quarter. We are well on track to deliver over 10% free cash flow growth this year. I'm excited about our international business where our technology portfolio has never been stronger. I am confident that our strategy to maximize value in North America is working, and I expect it continues to deliver strong returns. Finally, I am convinced that our collaborative approach and value proposition differentiate us from our competitors and are directly aligned with how our customers expect to drive improved performance. And now, let's open it up for questions.

[Operator Instructions] Our first question will come from the line of Dave Anderson with Barclays.

Hi, good morning, Jeff.

Good morning, Dave.

So, North America is softening a little bit, not a surprise. A lot of your fleet, though, is under contract with e-fleet. I think it's around 40% or so. And you're continuing to roll out equipment. So I'm just wondering about the re-contracting of those. I think you typically have like two to three year contracts. I would assume, like, maybe a third of that gets repriced each year or something like that. So what does that look like right now in terms of contracting? I think -- I'm assuming demand still outstrips supply here. So, is pricing able to still move higher in there? Are you doing to blend in, extend deals with some customers who want more? Just a little color around the repricing of that, on the e-fleets.

Yeah, well let's -- still see a lot of demand, Dave, for e-fleets. I mean, clearly it's a leading technology and we rolled a couple out this quarter and signed some more contracts. And so, that's a runway through the end of this year and into ‘25 that we see today. We don't have any contracts that expires early till next year. And so, that's a process that we're working through. I'm not going to go through all that on this call, but we're signing up with repeat customers, which is a pretty good indicator of the value that they're creating. So, feel confident about that process, but really don't want to go through it on the call.

Totally understand. But would you expect that most of those fleets stay with existing customers?

Yeah, I feel -- yes. Yes, still confident. I mean, these are the same customers in some cases that are signing up the second and even beyond their fleets. And so, no reason to believe that they would not. And we’re clearly on the path to the 40% in 2024 and 2025 as well. I mean, I think that's just that trajectory gets clearer every day.

Yeah, that makes a lot of sense. And if I shift over to your international story here, and within the 10% revenue growth, you highlighted Middle East up 5% this quarter sequentially. Can you just talk about that part of the international story for you and kind of how you see that growth? Should growth start to accelerate here? There's big unconventional play over there that I know you're involved in. I don't know if you can talk about any other contracting opportunities with that, but I would -- am I wrong to think that that growth should start to accelerate in the Middle East, even, I mean, within the 10%, I know, but really into next year as well?

No, you're not wrong. Look, I'm very confident around our business in the Middle East and as you say, I'm not going to talk about contracts, but Aramco obviously is a fantastic operator and we've got a lot of exposure to both the unconventional and the gas work in Saudi Arabia. We've got -- our typical services, a lot of exposure and even some creative sort of new things. So, I'm very optimistic, actually bullish around Middle East.

All right, it's good to hear. Thanks, Jeff.

Thank you.

Our next question will come from the line of Arun Jayaram with JPMorgan.

Yeah, good morning. Jeff, my first question is on North America. You now expect revenues down 6% to 8% year-over-year. How would you characterize the declines in terms of impact from lower activity levels versus, call it, pricing impacts?

Look, it's -- primarily this is activity based. The fact that we -- and then we retired a few fleets during the quarter as well, but this is activity and that's, as we look at activity for the year, gas market actually took a leg down. I didn't think it would come up, but I didn't really expect it to take a leg down either, so it's not flat. And I think M&A takes some time to digest, and so that has an impact on activity broadly and clearly efficiencies. I mean, we've got terrific technology. We talk about efficiencies all the time, but we also catch up to rigs. Glad we're at the leading edge of that technology and that performance makes Halliburton more value, but it really doesn't change the activity outlook.

Understood, understood. Jeff, you've obviously been on the road quite a bit internationally. You expect 10% year-over-year growth this year. I was wondering if you could give us any qualitative or even quantitative thoughts on how you think international spending trends in 2025 for industry and how is growth prospects internationally next year?

Look, they look strong for next year internationally. I mean, we see a lot of projects that are either just now being hindered or activity going into next year and in some cases, it takes a while to get the international up and going. And so, probably the activity that picks up [indiscernible] will be where it's sort of NOC driven, which would look in some cases like obviously the Middle East. Others where IOCs are engaged, it takes a lot of negotiation, contract extensions for them. And so, I'm seeing meaningful work. I just talked about my trip to Europe, Africa, and I see meaningful step-up there. Still excited about Latin America and what's possible there. And so, no, I feel really confident both in Halliburton's outlook for ‘25 and the industries.

Great. Thanks a lot.

Yeah, thank you.

Our next question comes from the line of Neil Mehta with Goldman Sachs.

Yeah, good morning, team. Jeff, I guess the first question just building on North America, what do you think is going to be the driver that forms the bottom in activity? I think you alluded to some of those points around M&A and natural gas, but maybe you can unpack that more. And are you seeing any green shoots in customer conversations that would suggest that $2.8 trillion is the bottom?

Yeah, look, I think that customers, in a lot of cases, are working through plans for 2025 now. And, let me maybe just step back and give you kind of where I see capacity and industry structure, because I think that's really important from a services standpoint. We've got -- new equipment is not being built. The old equipment is attriting. And I think that, I talked about retiring fleets this quarter. I mean, this is sort of shrinking of capacity availability and it's happening pretty much in real time, I think, across the board. And clearly as we look at next year, I say all that to say, I do expect an increase in activity around companies that get sort of new plans in place. I expect assets end up in the hands of new teams, which is -- I never bet against North America entrepreneurs. That will happen. I do expect some pick up in gas next year, at least not a leg down from here. So, clearly, I would expect a leg up. And I don't think it takes a lot of activity to firm things up, I think, is the point I'm making here.

Thanks, Jeff. And then just to follow up, it was a very good quarter for free cash flow and the company has been very consistent around $250 million of return of capital. So there's probably two parts to that question. One is, how should we think about working capital in the balance of the year and how should we think about your commitment to returning capital to shareholders?

Yeah, Neil, it's Eric. So as we said in terms of the working capital, I mean the working capital will evolve in a way that is consistent with our overall guidance of free cash flow being up over 10% compared to last year. We had more of a working capital headwinds in 2023, so that's a significant delta between the two years. And as an organization, we continue to focus on the overall efficiency of working capital as a whole. In terms of cash return, we bought back $250 million in Q1, $250 million in Q2, and I think generally speaking, it's a good kind of guiding point in terms of what we intend at this stage to do for the remaining of 2024.

Thanks, Jeff.

Our next question comes from the line of James West with Evercore ISI.

Hey, good morning, Jeff.

Good morning, James.

So, Jeff, as you think about -- and I don't want to beat a dead horse too much, but if you think about North America going into next year, I'm increasingly bullish on the outlook for ‘25 and certainly for ‘26, both with oil prices where they are and gas prices which should rebound nicely. And we have this huge power demand pull coming from the tech industry. And I think the tech industry is more fully aligned with the oil and gas industry than it's probably ever been. So I'm curious about your customer conversations, how they're thinking about, how do we get this gas to market, how do we size up crews or size up equipment and get ready for what's going to be a surge in demand and kind of pair that with constructing more natural gas-fired power generation and things of that nature to meet data centers and AI demand? How are your conversations kind of evolving there?

Look, there's a lot of discussion around what to do with gas. I think your point around data centers and alignment, it just -- in my view, that will be takeaway for gas at some point. Seems easier to lay data lines and gas pipelines. And the -- gas is such a fantastic fuel and resource for this country that I think it's directionally absolutely correct. In terms of timing, I think that will come on. I think it's early to still work through the mechanics of what that means to plants but I expect all that's coming together in the degree to which gas gets taken away that only creates more runway for oil in the Permian Basin. So I'm like -- I'm -- share your excitement around what data centers and AI mean for our industry in terms of natural gas takeaway and we've got a pretty good seat at that and get to watch it really closely and excited.

Got it. Okay. That makes a lot of sense. And then iCruise, you mentioned adoption. Now, I mean, we had great adoption internationally, but it sounds like you're getting better adoption in the US as well. Could you maybe highlight, kind of, what you're seeing with the iCruise and technology and how that's unfolding?

Yeah, thanks. Look, man, I'm really pleased with the technology in North America and I really like the way we're going to market with it because you were going to market with full services, our own services, we’re also selling direct sales and some rentals and that tells me three things about the technology. It tells me, A, it's in high demand. B, it tells me that it's very reliable because we could sell it that way and C, it's delivering performance And I'm really pleased with the customers that are adopting it because in my view, this kind of adoption is really, these are the gold standard of, in my view, drillers that, good drilling organizations that pick this tool up and say, wow, we really like it. We want more of it. And so, like I said, I think we've got a really good runway around drilling in North America and it's all rooted in sort of investments we've made over quite a few years, but I believe we're there today.

Got it. North America is a nice cash flow machine for you guys. Thanks, Jeff.

Thank you.

Our next question will come from the line of Luke Lemoine with Piper Sandler.

Hey, good morning.

Good morning, Luke.

Hey, morning. If you kind of revised the international outlook a little bit for this year, could you walk us through some of the puts and takes that have unfolded, or is some of this just a push into ‘25 on the spend?

Well, look, we're sort of halfway through the year and we've got really good visibility into the balance of the year. And so I didn't think we'd hit the high end of the range. So wanted to tighten that up for you guys as we look out. Q4 will be the highest international quarter we have, typically with software sales and tool sales. But day in and day out, we're continuing to grow, and we're very focused on profitable growth. And as I think I alluded to earlier, my expectation is that we see a continuing march internationally of growth. And oil price says that, our clients are saying that, my own project inventory is saying that. So if you describe it as a push, that's one way to think about it. But just from where we sit today, I know what we can get done and I thought it would be worthwhile to narrow that a bit.

Okay. And then you touched on it a little bit earlier, but could you walk through some of the various unconventional international opportunities you're seeing develop over the next two or three years?

Certainly. Look, Saudi Arabia and Argentina today are meaningful markets that are -- really have heft and are executing. The -- and I think what has changed and so the rest of the middle east I'm excited about and Middle East is a pretty big place if you think about it in terms of sort of from the Mediterranean all the way to back into Saudi, that's a long way. But there's a lot of activity being talked about. And I think we're right in the middle of those, I think. I know we're in the middle of those discussions. We've got a lot of experience in this. And I think what's different today is the sort of ability to accept sort of what the testing is. The early days activity of this, I think there's a lot of sort of we've seen starts and stops internationally, but now we have a proven model in two international markets where you get through the initial phase and then it becomes a meaningful contributor to production and I think that's being sort of seen by other places where they have good reservoirs, good rock and working through, I think, very thoughtfully and pragmatically what does it take to get from A to B. And so from my perspective, that's a much better discussion than sort of a scramble or wildcat sort of move all over the world. These are very serious operators that are taking a long view.

Okay. Thanks, Jeff.

Thank you.

Our next question comes from the line of Saurabh Pant with Bank of America.

Hi. Good morning, Jeff and Eric.

Good morning, Saurabh.

Hey, Saurabh. How are you?

Good. Thank you. Maybe, Jeff, I'll start with a question on D&E margin. Obviously, Eric, you guided to the third quarter, but anything beyond that, not just fourth quarter, but ‘25, how should we think about margin expansion opportunity because this is a primarily international driven business, right? How should we think about the impact from net pricing improvement, technology uptake? I know you talked about Landmark, right? But just help us a little bit with the margin expansion opportunity in D&E.

Yeah, I think the way to look at D&E margins is really the progression on year-on-year basis. There tends to be quite a bit of difference between different quarters as we recognize revenue around software impacts mostly Q1, Q4, et cetera. So it's really the year-on-year progression by quarter that you need to pay attention to from that perspective. We continue to improve the margins in D&E. We firmly believe that it continues as we get into next year. Jeff talked about the progression of the directional drilling business in North America. We continue to see progression and adoption of the new drilling technologies in the international markets as well. So directionally, we continue to be very confident in the growth of our D&E margins as we go into 2025.

Maybe a little more color on that, because when I think about our drilling business, we rolled out iCruise, which is the drilling tool, the BHA, and then, that penetration has grown to -- we're drilling a lot more feet with our iCruise than we are our legacy tools. Probably, 60%, 70% percent of our fleet is that today. But what follows on that is an equal sort of step-up in efficiency, performance and actually margin for us around our iStar technology, which is basically the LWD technology that goes with it. And that adoption or actually implementation is much less, I want to say, in the 20% range. So we've got a very good glide path of things that structurally improve margins for the most part D&E. And so I see that as part of my confidence around, look, we just need to continue to retire the old as it's time and replace it with the new. And that is structurally improving our capital efficiency.

Okay, fantastic. Now that's helpful. And just one on the production side of things. I know you talked about artificial lifting in your prepared remarks. Good to see international growing at a much faster pace than the overall international market for lift. But if we focus on the production chemicals side of things, I know you acquired Athlon, you've been investing time and money to expand that business, right? Maybe just update us on that, Jeff, where does the production chemicals fit and what's the opportunity just on that side for Halliburton?

Well, according to that business, it's clearly part of our portfolio, but it's also an inherently sort of lower returning business than the balance of our business. So we run it like all of our business with a focus on profitability and returns. I'm pleased at the pace we're filling our plant in Saudi Arabia. And that business has a long sales cycle. But we know a lot about chemicals and continue to execute that.

Okay, fantastic. Okay, Jeff, Eric, thank you. I’ll turn it back.

Thank you.

Thank you.

Our next question comes from Scott Gruber with Citi.

Yes, good morning.

Good morning.

Good morning.

Good morning. I'm curious, diesel prices have come off a little bit and there's hopes for a natural gas price recovery next year. So, Jeff, I'm curious, what gas price would close the cost of fuel delta between e-frac when using CNG and traditional diesel? I don't think it's $4 or $5 gas. I want to check that with you and just overall how would you describe e-frac economics even in an environment of healthier gas?

It's a couple things. It's a lot higher than that to start with. I mean if we just use sort of Btu 6 times, 6 times 4, at $4, you're still a long way from diesel prices. The other thing is the efficiency of the mousetrap. I mean, it's just -- our e-fleets are creating value well beyond the economic trade-off with gas. That's not to say there isn't a lot of runway around economic trade-off with gas, but that platform in and of itself is just a better operating machine and it provides technology for clients that really they can't get -- that's not available in another form. And whether that's AutoFrac, Octiv, what we're doing with sensory in terms of understanding recovery, a lot of this. And so we're able to help solve for delivering what was planned with precision and in measuring performance of what was placed in the reservoir. That's a whole different kettle of fish, but it's all attached to the ZEUS platform. And so all of that runs together. So when I think about e-fleets broadly, yes, there is the gas arbitrage which is happening all the time and like I said, long way to go on gas arbitrage before that ever comes up. But I think more importantly is what we're able to achieve with that technology for our customers.

Makes a lot of sense. And ultimately it sounds like Octiv and AutoFrac are going to help kind of further that ultimate penetration for e-frac with your customers and kind of extend any type of saturation point that ultimately could be hit. Just as you think a few years out, as you develop these softwares, develop a platform for a more efficient operation, where do you think e-frac goes as a percent of Halliburton’s fleet? And kind of when do you get there?

Well, look, I think we talked about this. We'll eclipse 40% this year. I expect we're at 50% next year. And we continue to invest both in the -- we're at scale today. And that allows us then to both improve or continue to extend the technology around the pump itself and the power systems, and then also the software that we're talking about that really addresses in my view what operators are focused on which is recovery and placement and a whole lot of things that affect productivity over time. And so we're extending that moat around that technology every day. And so I'm confident that as we continue into the future, we've got quite a glide path of ideas and things that will make that, yet again, even more effective for customers over time. So, pleased with where we are there.

I appreciate the color, Jeff. Thank you.

Thank you.

Our next question comes from Doug Becker with Capital One.

Hello?

Doug?

Yes, can you hear me?

I can, good morning.

So, Halliburton's North America revenue is regularly outperforming the North America rig count. Just wondering if you could just highlight some of the key drivers of that outperformance that you expect going forward and really asking to try and calibrate how Halliburton's North American revenue might outperform the rig count next year.

I think a lot of it, it's -- e-fleets are contracted. That's a large part of our business. The performance is leading in terms of efficiency and technology and we continue to invest in technology that differentiates Halliburton. And that's one of the key things. I mean, it's consistent with our strategy. I'll pivot back to our strategy just for a minute but we want to -- maximizing value in North America means that we're very targeted about what we do, what we invest in, where we spend money and on those things that we know will create differentiation. And clearly, technology is one of those key areas and not technology for the sake of technology but targeted technology that can solve for automation, that can solve for subsurface understanding and measurements, direct measurements. And so, that focus allows us to outperform on the revenue side of that and the maximize value again. That strategy hasn't changed at all and gives me a lot of confidence into ‘25 and beyond in terms of where Halliburton is in the market.

I mean, is it too aggressive to think about in a flat North America rig count environment? Halliburton’s revenue is still growing 5% next year in that type of environment.

Yeah, I mean, it could be. We need to watch it unfold next year. But look, I -- again, I'll go back to -- our performance in the market is going to outperform. It's early on ‘25 but I’ve got confidence in the technology and the solutions that we provide for our customers that are unique and that puts us in the position to outperform.

Right. That completely makes sense. And then just a quick one on the e-fleets. We've been hearing more talk about white space even on dedicated or contracted fleets. Just wanted to get a little bit better sense for your e-fleets. Is there any risk of white space? I fully appreciate that they're long-term contracts and they justify the returns, but just thinking about any potential white space risk on those contracts.

No, not the case. Our clients -- that contract -- again, these are contracted with customers with long programs, they're going to use these e-fleets. It will be always -- if there were white space, this is the fleet that they will keep working no matter what. It is -- when you're delivering lower cost of ownership, you are -- and delivering the technology and the client is committed to the fleet, that's the fleet that's always working. And so, no, not worried about that.

That's what I wanted to hear. Thank you.

Thank you.

Our last question today will come from Marc Bianchi with TD Cowen.

Hey, thank you. The first one I had was on the activity outlook. Jeff, you mentioned that it could improve here from the second half of ‘24, but it sounds like you're stopping short of talking about revenue. And I guess maybe following on some of Doug's question, when you look at how hard it is to call revenue, is price -- uncertainty about price the main thing or maybe talk about the top one, two or three things that are uncertain around revenue versus activity.

No, I think the uncertainty around activity is really the driver here. And when we look at the second half of the year, we've had some customers that did -- we caught up with them and they're still customers and they plan to go to work again next year and maybe even later this year. So no, that's not my concern. It is, again, I'll pivot back to our strategy in terms of maximizing value. We've got a lot of tools that allow us to do that technically. And, I think it's just a question of pacing of things happening in -- whether it's setting plans or other things. But, the ‘25 will be, in my view, clearly higher than the second half of 2024.

Okay, great. And then the other one I had, maybe this one's for Eric, but just looking at the third quarter guide for C&P, the margin reduction sequentially seems pretty steep for the revenue reduction we're getting. Could you talk about maybe some of the moving pieces there, what might be driving that margin weakness?

Yes, I mean, there's the -- the margin guidance is actually a combination of what we talked about for North America, but really Q3 margins in the international business are going to be lower than Q2 as well. So there's just not too much to read into this except there's a lot of moving parts in the business. It's not just North America. It's multiple product lines as well. So it is not all related to North America.

Yeah. Great. Thank you. I'll turn it back.

That concludes today's question…

Okay. Well, thank you. Let's wrap up the call here. I know all of you have a very busy day ahead of you, and maybe I'll give you a few minutes back before your next call. But as we close out today's call, it's important to step back and remember this. Halliburton delivered 18% margins and about $800 million of free cash flow in the second quarter. We're well on track to deliver 10% free cash flow growth this year. Our international business and its technology portfolio have never been stronger. Our strategy to maximize value in North America is working. We are committed to maximizing value, not market share, and I expect that strategy continues to deliver strong returns. Look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.