Halliburton Company (HAL) Q2 2025 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Halliburton Second Quarter 2025 Company Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. David Coleman. Sir, please begin.

Hello, and thank you for joining the Halliburton Second Quarter 2025 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 that reflect 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, 2024, Form 10-Q for the quarter ended March 31, 2025, 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. I will open today's call with a discussion of the oilfield services market, which appears very different today than it did only 90 days ago. In the second quarter, Commodity markets were volatile, driven by trade and tariff uncertainty, geopolitical unrest and the accelerated return of OPEC+ production cuts. Against this backdrop, here's what I observe in the market today, which directly influences my outlook. In North America, multiple operators, even large and established customers, are now planning meaningful schedule gaps in the second half of 2025. In international markets, particularly among some large NOCs, we continue to see reductions in activity and lower discretionary spend, typical of much lower commodity price environments. And finally, we've seen several well-publicized reorganizations and cost reduction efforts by large independent operators and IOCs. To put it plainly, what I see tells me the oilfield services market will be softer than I previously expected over the short to medium term. We will, of course, take action to address this near-term softness. That said, I believe the demand fundamentals remain strong for both oil and gas. I expect conditions will improve as additional OPEC+ production is absorbed by the market, and operators around the world work to replace declining production and meet increasing demand. As I look ahead, I believe that Halliburton is well aligned with the themes that I expect will define the next several years. First, unconventionals will continue to be a critical component of the supply picture. I expect that advanced technology to maximize recovery and returns will expand both in the United States and around the world. Second, production-related services like intervention and stimulation along with artificial lift will grow alongside increased global production of both oil and gas. Third, I expect demand will rise for complex drilling and well construction services to access available resources. This requires advanced tools and automation technologies for efficient development and delivery. I believe our strategic alignment with these themes positions Halliburton to deliver industry-leading returns. I fully expect that the strategic execution that delivered performance in recent markets will continue to deliver outperformance in the future. Now let's move on to our geographic results. I'll start with the international markets, where Halliburton delivered quarterly revenue of $3.3 billion. The second quarter demonstrated 2% sequential growth with activity increases in Latin America and Europe, Africa, offset by activity reduction in Saudi Arabia. As we look at the full year 2025, I expect our international revenue will contract by mid-single digits year-on-year primarily driven by activity reductions in Saudi Arabia and Mexico. Despite the ongoing softness in these large markets, I do expect Halliburton to demonstrate growth in Brazil and Norway, as well as offshore frontier basins, where we secured key wins last quarter through our technology, operational excellence and collaborative approach. Thinking broadly about our international business going forward, our growth engines, unconventionals, drilling, production services and artificial lift remain key to our international strategy, and we believe Halliburton has unique opportunities to grow in each of these areas as evidenced by our recent progress. In unconventionals, we continue to see adoption of North America style development, multi-well pads, long laterals and large completions in several international unconventional basins, which reinforces our confidence in our unique ability to lead in unconventionals. In Argentina, we achieved a record quarterly stage count and performed our first sensory fiber optic fracture monitoring service, a milestone in expanding our leading unconventional technologies outside of North America. In Australia, we recently completed a 67 stage stimulation, the largest job to date in the [ Beetaloo ] Basin. And in the Middle East, we drilled the longest well in the region's largest unconventional play. Turning to Drilling Services. iCruise, LOGIX Automation and the iStar platform delivered strong performance and introduced unique capabilities in several technically demanding markets. Globally, we surpassed 0.5 million feet drilled with LOGIX closed-loop automation and completed an important trial with a customer in the Middle East. In Norway, we recently utilized iCruise and LOGIX to drill the longest well in the Norwegian continental shelf to a measured depth of over 10 kilometers. In reservoir mapping, we launched EarthStar [ 3DX ]. It builds on our leading EarthStar X and Brightstar mapping technologies, and provides a 3-dimensional map ahead of the bit while drilling. This unique capability allows proactive steering around hazards and precision wellbore placement for optimum drilling efficiency and recovery. Next, in Production Services, we had several activity highlights during the second quarter. In Brazil, we began operations on our largest integrated well intervention contract which highlights the expansion of our collaborative model from well construction to production. In Norway, we expanded our [ riserless ] coiled tubing services beyond our initial pilot and completed a 3-well intervention campaign for a customer. Finally, in artificial lift, Halliburton secured its largest international ESP contract to date from a Middle East NOC. Middle East Asia remains our largest and fastest-growing international lift region with strong year-over-year growth also achieved in Latin America and Europe, Africa. We expect International artificial lift revenue to grow over 20% this year and plan to double the installed base of [ Intelivate ], our remote operations and automation platform. It has been a strong start to the year, and I expect to exit the year with an international franchise that is larger than all of Summit at the time of acquisition, a significant milestone in our growth journey. To conclude my thoughts on the international market, while activity reductions in a few large markets will likely overshadow the solid performance of other geographies, I am confident our strategy is the right one, and our growth engines remain key to that strategy. Now let's turn to North America, where our second quarter revenue of $2.3 billion was roughly flat to first quarter. Seasonal improvements in completions were offset by lower service pricing and reduced artificial lift activity. As we look at the remainder of the year in North America, we expect that revenue in the second half will decline due to lower drilling and completion activity. This comes in the form of more white space in our frac calendars, the full period effects of recent service pricing reductions, and the stacking of frac fleets that do not meet our returns threshold. While increases in gas activity are likely to absorb some service capacity this year, it is unlikely to offset the decreases in oil-directed activity. We now forecast full year North America revenue to decline low double digits year-over-year. In this environment, differentiation has never mattered more. Halliburton's leading technology remains an important differentiator for us. This quarter, we were pleased to see Chevron announce their ZEUS IQ closed-loop fracturing milestone in the Rockies. Customer enthusiasm is strong, and we are actively deploying ZEUS IQ across our U.S. operations. I expect up to 1/3 of our ZEUS electric fleets to operate with ZEUS IQ by year-end, a strong endorsement of a technology that debuted only a quarter ago. In North America drilling, iCruise and LOGIX Automation enable our customers to maximize the value of their assets by consistently delivering curve and lateral sections on today's longer wells. This performance has driven rapid growth in our U.S. land rotary steerable business and double-digit revenue growth in North America drilling services, even amid rig count declines. To finish my thoughts on North America, activity reductions will affect the oilfield services market this year. I am confident in our plans to take the necessary actions to address these headwinds. My customer conversations tell me technology and service execution are key to maximizing the value of their assets. And I believe Halliburton has unmatched capability to deliver both of these at scale, which is why I am confident we will deliver returns in North America that outpace our competitors. For both the international and North America markets, here's how I plan to address the near-term softness. First, we will not work equipment where it does not earn economic returns, and this includes North America frac fleets. Second, we will reduce our variable and fixed cash costs over the quarters ahead to size our business to the market we see. And finally, we will remain focused on free cash flow and returns, and will remain diligent stewards of capital. Before I turn it over to Eric, let me close with this. I am confident in Halliburton's future. Today, we are more differentiated with deeper technology advantages to address our customers' requirements and more collaborative than ever before. I believe our value proposition to collaborate and engineer solutions to maximize asset value for our customers is a powerful driver of both customer and shareholder value. With that, I'll turn the call over to Eric to provide more details on our financial results. Eric?

Thank you, Jeff, and good morning. Our Q2 reported net income per diluted share was $0.55. Total company revenue for Q2, 2025 was $5.5 billion, an increase of 2% when compared to Q1, 2025. Operating income was $727 million, and the operating margin was 13%. Our Q2 cash flow from operations was $896 million, and free cash flow was $582 million. During Q2, we repurchased approximately $250 million of our common stock. Now turning to the segment results. Beginning with our Completion and Production division, revenue in Q2 was $3.2 billion, an increase of 2% when compared to Q1, 2025. Operating income was $513 million, a decrease of 3% when compared to Q1, 2025, and operating income margin was 16%. Revenue increased largely due to seasonal improvement in pressure pumping activity in the Western Hemisphere. The decline in operating income was primarily driven by lower pricing for stimulation services in U.S. land. In our Drilling and Evaluation division, revenue in Q2 was $2.3 billion, an increase of 2% when compared to Q1 2025. Operating income was $312 million, a decrease of 11% when compared to Q1, 2025 and operating income margin was 13%. Revenue increased due to higher drilling-related services globally. Operating income decreased due to seasonal roll-off of software sales and increased startup and mobilization costs across multiple product service lines. Now let's move on to geographic results. Our Q2 international revenue increased 2% sequentially. Europe-Africa revenue in Q2 was $820 million, an increase of 6% sequentially. This increase was primarily driven by higher activity across multiple product service lines in Norway. Middle East Asia revenue in Q2 was $1.5 billion, a decrease of 4% sequentially. This decrease was primarily due to lower activity across multiple product service lines in Saudi Arabia and Kuwait. Latin America revenue in Q2 was $977 million, a 9% increase sequentially. This increase was primarily due to improved activity across multiple product service lines in Mexico and Brazil, and increased well intervention services in Argentina. In North America, Q2 revenue was $2.3 billion, relatively flat when compared to Q1, 2025. Slightly higher well construction activity, completion tool sales, and stimulation activity in the region were offset by lower artificial lift activity and software sales. Moving on to other items. In Q2, our corporate and other expense was $66 million. We expect our Q3 corporate expenses to increase by about $5 million. In Q2, we spent $32 million on [ SAPs ] for migration, which is included in our results. For Q3, we expect SAP expenses to be about flat. Net interest expense for the quarter was $92 million. For Q3, we expect net interest expense to be approximately flat. Other net expense for Q2 was $24 million. For Q3, we expect this expense to be about $45 million. Our effective tax rate for Q2 was 21.4%. Based on our anticipated geographic earnings mix, we expect our Q3 effective tax rate to be approximately 23.5%. Capital expenditures for Q2 were $354 million. For the full year 2025, we expect capital expenditures to be about 6% of revenue. In Q2, tariffs impacted our business by $27 million. For Q3, we currently expect a negative impact of about $35 million, or about $0.04 per share, which is included in our guidance. Now let me provide you with comments on our Q3 expectations. In our Completion and Production division, we anticipate sequential revenue to decrease 1% to 3%, and margins to decrease 150 to 200 basis points. In our Drilling and Evaluation division, we expect sequential revenue to also decline 1% to 3%, and margins to improve 125 to 175 basis points. I will now turn the call back to Jeff.

Thanks, Eric. Let me summarize the key takeaways from today's discussion. First, we are aligning our business with the current market conditions. We will reduce costs and retire, stack or reallocate underperforming assets. Next, internationally, we see strong performance in our growth engines unconventionals, drilling, production services and artificial lift. We secured key wins last quarter through our technology, operational excellence and collaborative approach. In North America, the ZEUS platform and iCruise continue to differentiate Halliburton by delivering unique value to our customers. Combined with our ability to execute at scale they reinforce our position as the leading services company. And finally, we remain focused on returns, capital discipline and free cash flow. And now let's open it up for questions.

[Operator Instructions] Our first question, or comment, comes from the line of Neil Mehta from Goldman Sachs.

The first question was really just -- is around C&P margins. They were a little softer in the quarter, and we appreciated the Q3 volume Q3 guide. But can you just unpack that a little bit more? What are you seeing that's contributing to that? And how do we get that moving back in the right direction?

Yes, Neil, it's Eric. So let me -- I'll give you a couple of colors on the C&P margins versus what we guided for Q2, and then I'll give a little more color around the Q3 guide for Q3. So starting with Q2, we actually were kind of on guidance in terms of revenue margins was a bit lower than the guidance on flat. We are, I think, 80 bps below the guide. So what really happened in terms of the revenue side, we were up in most regions and most product lines across the C&P division with two major exception. One, Saudi, and also the artificial lift business in North America. The reduction in Saudi is actually a reduction in frac, but also on the related services as a lot of the frac in Jafurah slowed down ahead of the award of the new tender. The other element that contributed to softer margins are obviously the pricing headwinds in U.S. land and also the reduction in the Saudi activity I talked about. Some of that was offset by the performance of our cementing and completion tool product lines. But overall, it resulted in a slight miss from a margin perspective. So that's the color on the performance versus the Q2 guide. Now if we move to Q3. So our guidance is 1% to 3% reduction in revenue and 150 to 200 basis point reduction in margin. There are really three main elements that contribute to the guidance. The first one is the reduction of activity and reduction, or softness, in pricing in North America land pressure pumping, which is both frac and also cementing. The second element is the reduction of completion tool deliveries in most international markets, partially offset by increase in completion deliveries in the Gulf of America and these are essentially just operation, the cycle of drilling versus completion, et cetera. And the third element, which is the one I mentioned that affected also Q2 is the reduction in activity of frac in Saudi.

And so maybe, Jeff, for you, a quick question is just can you help us walk through your customer conversations about the white space as you think about the back half of the year in North America for the frac side of the business? And any early thoughts on 2016? I know it's a really volatile macro, but you probably have some great perspective as you talk to your most important customers.

Yes, certainly. And, well, I think that conserving cash, we look and we see that as I mentioned in my prepared remarks, quite a bit of reorganization and activity going on around that. And so I would say customers are fairly cautious in conserving budget. They also say, though, that the most important thing is technology and service quality performance, which is certainly good for Halliburton, and we'll probably talk more about it, but sort of the technology steps we've taken have been important. And so as I look out to '26, it's really early with the volatility that we see and just -- what precisely they're going to do for 2026 is sort of on hold. But what I would expect is that we would see activity earlier in the year, picked up above what it is in certainly Q3 and [ 4 ]. But as far as sort of doubling down, I think that I don't see that happening soon until we see some catalysts that change trajectory on sort of price outlook.

Our next question, or comment, comes from the line of Dave Anderson from Barclays.

Just kind of curious, Jeff, where are we right now in terms of these E&Ps resetting their programs? You talked about some meaningful schedule gaps coming up. I'm just kind of curious, we've seen a pretty steady decline in oil [indiscernible] the last few months. Do we be thinking about kind of a 4Q bottom? And then related to that, if you could give us maybe a little bit more color on pricing? I know at the end of last year, concessions were made to keep fleets contracted. The situation today, I'm curious, are they coming back for another bite of the apple? And it sounds like you've walked away from some work. I'm curious, does that mean you're getting rid of the final diesel fleets? Sorry, threw a lot of that first question.

Yes, fair enough. Couple of questions in there, Dave. All good questions. So let me just start with outlook on where are we in sort of the cycle or where are we relative to a bottom? And I really think we have to look at the supply and demand fundamentals here. And we projected, I think broadly as projected, there's solid growth in oil demand. But we also have spare capacity coming into the market, and sort of the U.S. producing at a fairly high level. And so I think as supply consumes -- as demand starts to consume spare capacity, and we also start to see sort of production rollover in some key markets, which it likely will. I mean, the decline curve is still working. I think those are the signposts we look for in terms of where do we things come -- where do we see sort of a bottom versus a recovery? What I do know, though, is that the -- it becomes a question of duration. Duration and sort of depth. And so if it comes off hard, it comes back on pretty hard, and pretty quickly, and that's what we see. So we need to look for those signposts. We've seen that we're below maintenance level today in North America, certainly below maintenance level in Mexico and a few other key markets around the world. So I think we're -- from a trajectory standpoint, that recovers. From a price standpoint. Yes, I mean, we at a place where I would describe it as we get to make choice. And so we are making choice around equipment working or not working, and we'll clearly stack some fleets. Just because -- just we're not going to work it on economic levels. And it's a commitment, it's strategic for us, and it takes some equipment out of the market as well. But from our perspective, working at uneconomic levels is literally burns up equipment, creates [ HSE ] risk and all sorts of things that we just don't want to do. And so that's -- those are steps we are taking now broadly from a -- Dave I'll stop there. That's kind of where we are.

No, that makes sense. That makes sense, Jeff. And maybe if I could shift to international markets. You mentioned unconventionals a number of times. Argentina, Australia and obviously, Saudi, which is the big one we're all kind of watching here. I was wondering if you could give us a sense as to kind of how big this now -- right now is in your international portfolio? And how big it could actually be in a couple of years? Just trying to get a sense. Is it like 10% of international revenue that at this point? Like kind of where does it go from here? Just a little bit of a relative sense here in terms of the opportunity.

Yes. Let's -- look, I think there's opportunity in certainly Argentina, as you described. Also Saudi Arabia, but it's well beyond that in terms of sort of trajectory. And like all things that start slowly and then gains legs, which I would -- how I would describe probably Argentina more so just because of the sort of a broad group of customers all investing in a market and it got a lot of legs. And now today, that is a meaningful market, a very meaningful market, and a technology-driven market. I think that we expect growth beyond just those two countries. And I think that's what's important. As we go forward. We've seen pretty solid growth year-on-year. I would say double digits growth year-on-year with our international frac business, non-U.S. frac business. That's why I described Australia. I'll describe the UAE, where we see quite a bit of opportunity. And then also, most of North Africa actually presents pretty good opportunities for unconventionals, and also having the markets. And yes, and I think in gas demand is going to drive in a number of these markets, you're going to see unconventionals driven more by gas demand than anything else.

Our next question, or comment, comes from the line of Arun Jayaram from JPMorgan.

I wanted to maybe elaborate -- I wanted to see if you could maybe elaborate on that commentary on unconventionals. And wondering if we could focus on the Middle East? I know I cover [ EOG ] and they'll be testing an unconventional play concept in the UAE. And perhaps I wanted to see if you could comment on how was positioned in the upcoming Jafurah tender. I know that, that tender will include -- called a tripling of the amount of stages, so it's a large tender. Jeff, how important do you think technology will be within that tender? And when do you expect to see activity kind of rebound in Saudi?

Yes. Look, from an unconventional perspective, we're well positioned in the Middle East for unconventionals, both from an equipment standpoint and technically. And we have work starting Q4-ish in UAE, and we're happy with that, and that will be a technology showcase, I expect in terms of what we can do with ZEUS IQ and some other things. I'm not going to comment on Jafurah, other than to say it's in process now. It's -- we've got a very disciplined approach to bidding work. And I think that's what needs to be remembered here. And we're centered on -- that whole process is centered around returns and long-term returns, not just volumes. And I think we know quite a bit about this [indiscernible] price frac, et cetera. And so from that perspective, look, by the time we're talking about named tenders on calls and things of that nature, you can bet they've gotten pretty competitive. But that said, we do like the frac work we're doing internationally, and I really like the interest in the technology, beyond interest actually buying the technology in Argentina, for example, that we're able to do with how to place fracs, where the sand is going, how to improve recovery.

Great. Jeff, my follow-up just on the portfolio. I know in the last 10-Q, you commented on the focus on Halliburton maybe to market a portion of its chemicals business, but just thoughts on [ pruning ] of the portfolio?

Look, we want to be investing in the thing -- we are investing in the things that we believe show the best returns for us and the best sort of opportunity for growth and returns. And so we do. We bring the portfolio from time to time. We really like what we're doing with lift. And we think the [ ESP ] lift in particular, is the most attractive, certainly for us. And as we look at other parts of our portfolio where we don't see necessarily, we don't see the opportunity for the kind of accretive returns that we would like. We take a hard look at it.

Our next question, or comment, comes from the line of Roger Read from Wells Fargo Securities.

Coming back to the -- let's just call it the North American outlook here, that I recognize. A lot of things are kind of going against this year in terms of rig count, frac count, all that. We did get some tax reform with a big better bill, or a big beautiful bill, whatever that BBB. And we've heard a number of the E&P companies talk about it will be favorable to their free cash flow. So when we think about your outlook as it is today kind of through year-end, and then we think about maybe commodity prices hold flatter, and some of these guys have a little more cash. What sort of in the risk profile of your outlook? In other words, is that something that could help meaningfully? Or do you feel, hey, visibility is actually pretty solid here, and we got a good view in the year-end of significant softness?

Look, I don't think the [ big beautiful build ] necessarily factors into the plans in terms of what customers do. I think that's going to be quite a bit more sort of budget and commodity driven and returns driven for them. But what -- when I look at the market, I think we have a fantastic group of customers. And really good customers. And so -- they are serious about this work. Got good strategies. And if there's white space appearing, it's to manage budget. The plan for 2026 is far from set for them at this point. But they're the kind of customers that we know will be active in this market. And so when we see white space like this, in some cases, we will stack for a short time and then come back or we will reallocate things in a way that we think is best from a returns perspective. Or we will, in some cases, make the determination to stack and keep something stacked. So I think that from an activity set we really need to watch supply and demand. And as I said, those signposts around what does production overall do in North America, I think, will be a key driver in terms of what '26 looks like.

Yes, that makes sense. And then in terms of your comments about not wanting to chase uneconomic work. Historically, this has been a sector that sometimes gets more market share rather than, let's call it, returns or margin focused. Is that -- we should think it's a little different this time you are going to be focused on maintaining, call it, margins and returns as opposed to a market share fight?

Look, we are -- strategically, we're about maximizing value in North America, maximizing returns in North America, and that includes not working at uneconomic rates. And so -- this is exactly what we did -- what we did a year ago in the gas markets and something we will continue to do. I mean, the fact is we want good equipment when it snaps back, we want to make money with the equipment. And that's just the approach we're going to take. We've taken it before. So it should not be -- it's not something we're going to do. It's something we've done, and we'll certainly do it again.

Our next question, or comment, comes from the line of Saurabh Pant from Bank of America.

Jeff, or Eric, maybe. I want to spend a little time on the cost side of things. I know you have worked hard to variabilize your cost structure in North America and yet you did speak to reducing your variable and fixed cost, right? But how should we think about what kind of level of activity that you would be using to frame what you think you can take out of your cost structure? Or put differently, how should we think about protecting margins? Maybe overall, maybe [indiscernible] and C&P, however, you want to talk about that?

Yes. Look, we are looking at a market where we want to take action around variable costs, clearly. It's not a perfect science, but as activity slows down, we want to take equipment and cost out of the market. Not a perfect science, but we've seen some moves in the market that caused us to do that. So that's 1/2 of the equation. When I get to the other half of the equation around structural costs, we're still relatively busy around the world. That said, contributing to margins, or maintaining -- taking actions that drive efficiency, no different than what our customers are doing is right in our wheelhouse. And we've done that before also and expect to do that again. To frame that, look, it's probably in the 1% range sort of type thing is early days as we get started. And it may be a couple of quarters as we get rightsized around what we see in terms of the market. It's a bit of a dynamic market today. So we're targeting what we see. I think we probably got a pretty good handle on where we need to get from a reduction standpoint, but we'll need to let that play out.

Got it. Got it. Okay. And then the other one I have, Jeff, for you is on the Saudi market. We have all seen the rig count in the country come down, right? To speculate for me at this point to say where it goes, right? But one thing I've been hearing is that maybe the Saudi market becomes more or less [ TK ] over time as activity comes back or even if it doesn't come back, right? But Look, I don't know, right. But just a philosophical question, if that's what happens, right? Saudi more [ LSTK ], Middle East in general is more [indiscernible] How does Halliburton play in that market? Is it to Halliburton's advantage? Or do you have to adapt the way you do things? Maybe just a high-level comment on that.

Well, look, we've got very strong muscles in that area, and we've been successful doing that. I would say our project management organization is the strongest it's been. We do a lot of collaborative work and we do [ LST ] work today. In fact, today, that type of work, [ LSTK ] and collaborative type work that we described represent more than 20% of our international business. So clearly, I think it -- it's in our wheelhouse to do, and it's a strength for us. And so I would see that as advantageous. So I will start all of that with what I said earlier around our tendering process, which is highly disciplined and is geared towards returns. And so again, volume and market share at the expense of returns is not -- it doesn't help the cause at all. And so what you'll see us be is very sharp around how we look at those things and make sure that we can make a return. But the capability to do it, we do a lot of it today, and really pleased with actually where that whole business is.

Our next question, or comment, comes from the line of Marc Bianchi from TD Cowen.

I guess I wanted to ask about sort of doing some math here from the 3Q guide you gave and the outlook you gave for the year for North America and international. It seems to imply a pretty big step down in 4Q to kind of get to the numbers that you talked about. And I guess I'm curious how much visibility you have to that at this point? How are you thinking about -- is it more pronounced in international versus North America when we look at fourth quarter?

Marc, it's Eric. So we're not going to give you an exact guide on what Q4 looks like. There are a lot of moving parts that we touched on today is what the U.S. activity is going to look like, the among white space, the activity in Saudi. Mexico is kind of being on and off, et cetera. So a lot of things can happen between now and Q4 that will shape Q4, how Q4 looks like. But directionally, to give you some color, we're looking at probably kind of flattish revenue at best, it would seem. We'll see a reduction in C&P revenue, an increase in D&E revenue. Margin will continue to soften probably in C&P because of the amount of white space in the U.S. frac market, Jeff talked about. We will see a continued strengthening of the D&E margin on top of what we did in Q3. And we'll see the usual seasonality that we see Q4 over Q3. So frac in the U.S. tends to come down. Software sales will pick up materially, and then typically completion tools in the C&P division go up as well. So that's kind of how we look at Q4 at this point in time.

Okay. And I guess given the cost actions you're taking and the efforts you're making to sort of manage through the market, do you think that C&P margins can hold above double digits as we exit the year?

Yes.

Yes. Yes. No, for sure. Yes.

Very much [indiscernible] that.

Our next question, or comment, comes from the line of Scott Gruber from Citigroup.

I just want to follow that last line of questioning. Eric, the margin improvement, you mentioned in D&E in 4Q, is that going to be largely just seasonal factors, some more software sales, et cetera? Or is there any of the mobilization expense and contract start-up costs that weighed on 2Q? Is there an element of those costs still impacting 3Q? Or most of those in the rearview mirror now?

No. I mean if we look at -- so I think Q4 will be a continuation of Q3 with a with a material impact in terms of improvement in margin coming from the software sales part of the business. Now if we kind of peel the onion a little bit in the Q3 guide for D&E and the improvement there. So we guided an improvement of 125 to 175 basis points. So the different factors that are coming into play there is, one, the reduction in activity in Saudi, which is kind of a headwind for us in terms of [indiscernible] The second element is on -- is a bit of a change in the drilling versus completion cycles. We talked about it in completion the Gulf of Mexico completions coming up, but the offset of that is like drilling fluid, which is a really big business for us in the Gulf of Mexico, and in Europe is coming down a bit. The two largest drivers, or three largest drivers of margins in Q3, though is the start of the improvement in software, a global improvement in our directional drilling business and the elimination of mobilization costs that dragged margins down in Q2. So that's a little bit of color on Q3 and Q4 from a D&E perspective.

I appreciate that. I appreciate the details on how you're responding to the current environment. CapEx should now be sliding with lower sales. But is there a plan to pause the ZEUS fleet expansion either in the second half or next year? And if we think about that investment on an annual basis, how much would CapEx come down if that program has [ passed ]?

Yes. Look, I think that, that program has always been demand driven in terms of we've only built equipment, four contracts that we had in hand. And so it's been less of a program and more of a demand-driven activity. And so the extent to which we don't see demand for new equipment, that obviously will come in. And so -- and then with respect to anything else, we will expect to bring down CapEx to the lower end of that range as we go into 2025 -- or 2026 certainly. And -- but from a ZEUS build standpoint, I would expect that slows down just because we've achieved the 50% of our fleet, [indiscernible] thereabouts of ZEUS fleets and like the portfolio that we have.

And is it kind of $40 million, $45 million of fleet in terms of what you'd say is?

No. CapEx -- for CapEx?

CapEx [ especially ].

About ballpark.

Our next question, or comment, comes from the line of Derek Podhaizer from Piper Sandler.

So there's a lot of interesting comments on artificial lift on the call. You're seeing some bifurcation, seeing softness in the U.S. land, but significant growth internationally. Can you maybe walk through the puts and takes in each region there? Are you seeing tariffs maybe bite into the U.S. land artificial lift market? International, is that more of a function of the increasing unconventional activity? Just maybe some color on artificial lift, U.S. versus international?

Yes. Look, the demand for artificial lift is around accelerating production. And so it's not as much as unconventional story internationally as it is just great technology in conventional wells to produce more oil. And we -- when we acquired [ Summit ], they had no footprint internationally. And so we've been quite successful in growing that business into markets on the back of just the technology and performance, and automation, that Summit has developed and has taken to new markets. In the U.S. market, it is going to be somewhat affected by just activity levels that we see. And then secondly, from a tariffs, do they have an impact? Yes, they do.

Yes. On the tariff side of things, as we said, Derek, we expect tariffs go up a bit in Q3. Artificial lift is probably the largest component of the tariffs for us today. So our team in [ Summit ] and our supply chain team are working hard, trying to kind of rewire part of the supply chain around what they source from China, but it's going to take a couple of quarters to work through.

Got it. Very helpful. Appreciate it. And then just a question on two regions. So you talked about Mexico being a source of strength here in the quarter, with [ LatAm ] up 9%. I was surprised with that. So maybe can you just give us an update on Mexico, seeing a lot of new slot of the country and where we are with that? And then separately, Kuwait. You pointed as a sign of a bit of softness, which I was surprised about given it was one of the bright spots that's been talked about over the last quarter. So maybe just your thoughts on where you see for Mexico go forward and Kuwait?

Look, Kuwait overall is a solid market and it will bounce around from month-to-month, quarter-to-quarter. But ultimately, we see growth in Kuwait. No question about growth in Kuwait, and we do important work in Kuwait. Today and expect to do more of that in the future. From a Mexico perspective, we saw a solid improvement in LatAm, but it was not Mexico. And so solid performance in Mexico. I mean, with the issues in Mexico, in my view, aren't settled. And so I think we see starts and stops in Mexico. And I've been to Mexico. I've met with the management team there. I think what we're going to see is decline rates at a pace that create sort of pressure to reactivate the business there. And oil and gas is obviously critical to the economy of Mexico, and I think that will drive recovery.

Our next question, or comment, comes from the line of Stephen Gengaro from Stifel.

So two for me. And I think the first -- Eric, I'm not sure you'll comment on this or not. The guidance color you gave kind of for the different geographies and segments, it feels like [ C&P's ] kind of step down like double digits in 4Q to get there. Is that accurate?

Yes, it's about right.

Okay. Okay. The other question, when we started thinking about kind of the pricing in U.S. pressure pumping, particularly as we kind of get into the fourth quarter, and then thinking about 2026, how do you approach the customers for -- obviously, the service quality and the quality assets you're delivering, and what clearly is going to be kind of a soft market. And as you kind of contract these out into '26, what is sort of the pricing strategy to kind of maintain margin in that environment?

Well, look, I'm not going to get into the details around pricing strategy here. But we obviously look at value in terms of value created for customers, and we look at the opportunities to provide more technology and how does that create value. And then ultimately, we step back if the pricing is not in a situation where we can make economic returns, then we just say no. I mean -- and that's where I say we get to exercise some choice as well in terms of [indiscernible] what the market looks like for us.

And just one quick one. We've heard kind of maybe fleet attrition is accelerating a bit. Are you seeing that in the overall market?

I'm sorry, repeat the question?

Whether you're seeing fleet attrition across the industry accelerating at all, or expected to accelerate in this market?

Yes, I do expect it to accelerate in this market, and it is, to a certain degree, it's always sizing to the market that's there. I mean that's what happens. And so it's -- equipment will get retired and then it will be, in many cases, harvested to -- for spares and other things, and that's how it gets consumed. At the same time, fracking and gas is just harder on equipment than it is in oil. It's just higher pressures, which means it's harder on the equipment. That means the equipment wears out more quickly. And so we're really thoughtful about pricing and where we put equipment to work for those very reasons.

Our next question, or comment, comes from the line of Doug Becker from Capital One.

Jeff, Eric, just given the updated outlook, I wanted to get your thoughts on free cash flow this year. And does the commitment to the cash returns framework explicitly mean the [ $1.6 billion ] cash return targets still intact?

Yes. I mean, the update as we talked about a bit of a softening in the market. So we've revised our outlook for free cash flow in '25 and right now, the range that we're looking at is anywhere between $1.8 billion and $2 billion. That's kind of how we're setting things. That's how we're seeing things evolve [indiscernible] on the free cash flow for '25. Now we're not seeing anything that really changes our perspective on the cash return to shareholders. I mean when we're through Q2, if you account for the second half of the year dividend will be over our 50% return already. Now we'll probably maintain the pace at which we have been going. So yes, that's kind of how we look at that free cash flow and returns.

I'm showing no additional questions. At this time, I'd like to turn the conference back over to management for any closing remarks.

Thank you, Howard. Look, before we wrap up today's call, let me leave you with a few thoughts. Despite industry cycles, I believe the demand fundamentals remain strong for both oil and gas. Today, Halliburton is more differentiated with deeper technology advantages to address our customers' requirements, and more collaborative than ever before. Those are powerful drivers of both customer and shareholder value. Throughout the cycles, Halliburton will remain focused on free cash flow and returns. I look forward to speaking with you next quarter. Howard, please close out the call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.