On the Halliburton Second Quarter 2023 Conference Call, David Coleman welcomed participants and Jeff Miller discussed the strong results of the quarter, which were driven by service quality, outstanding execution, and strong global demand for high-quality and high-performance oilfield services. He also noted that recordings of the call would be available for seven days on Halliburton's website, and that any forward-looking statements involve risks and uncertainties that could cause actual results to differ from those statements. Non-GAAP financial measures were also discussed.

Halliburton reported strong financial results for the first half of 2023, with total company revenue increasing 14% year-over-year and operating income growing 41% compared to the second quarter of 2022. The company generated $1.1 billion of cash from operations and $798 million of free cash flow, repurchasing $250 million worth of shares. Demand for oil and gas is strong, with customers expecting to work more and long-term capital investment being necessary. Upstream spending is expected to grow in 2023, with customer spending growth in the high teens and around 10% respectively compared to last year. International revenue grew 17% year-over-year.

Halliburton is focused on delivering profitable international growth through technology offerings, contract wins, and a collaborative approach to working with customers. Examples of their technology include drilling and LWD platforms that offer better reliability, data capture, and efficiency, as well as intelligent completion systems and Landmark's DecisionSpace 365 software. They recently set a world record for the longest well ever drilled and acquired Resoptima, a leader in advanced ensemble modeling.

Halliburton has recently announced a long-term strategic relationship with Vår Energi for drilling services, which is an example of their successful international strategy to maximize asset value through capital efficiency, differentiated technology, and alignment with high-quality customers. They have also seen success in North America, where revenue grew 11% and margins remained strong. Halliburton is continuing to focus on pricing and transitioning to electric fleets in order to further maximize value.

Halliburton is seeing strong demand for their Zeus e-fleets, with more multi-year contracts being signed in the second quarter than any prior quarter. The company is continuously improving their equipment design, manufacturing, operations, and maintenance, which has led to higher horsepower density, pump efficiency, and automation of equipment operation. This has resulted in better performance and lower total cost of ownership for customers, and widened the moat around the company's e-fleet business. Halliburton has also seen steady growth and margin expansion in their D&E business due to the technological changes they have implemented over the past several years.

Jeff discussed the various ways D&E has improved its services and products, such as FloConnect Surface well testing and Xaminer platform, which have helped reduce costs and increase quality. He also reported that D&E has returned $1.2 billion of debt, increased their quarterly dividend, and repurchased $600 million worth of shares. Lastly, he mentioned that the company is in the process of upgrading its SAP S4 software, which will take 2.5 years and will cost $13 million.

Halliburton reported net income per diluted share of $0.68 in the second quarter and total company revenue of $5.8 billion. The company expects a total project investment of approximately $250 million, which should pay back in about three years. The completion and production division reported revenue of $3.5 billion and operating income of $707 million, while the drilling and evaluation division reported revenue of $2.3 billion and operating income of $376 million. The results were driven by increased activity in international markets and higher artificial lift activity in North America.

In the second quarter, international revenue increased 7%, largely due to product sales, activity increases and pricing gains across multiple product lines. In North America, revenue decreased 2%, driven by decreased stimulation activity in U.S. land. Latin America revenue increased 9%, due to higher completion tool sales in Brazil and improved activity across multiple product service lines in Mexico and Argentina. Europe/Africa revenue increased 5%, primarily due to increased fluid services across the region and higher completion tool sales in Angola and Norway. Middle East/Asia revenue increased 6%, largely resulting from higher completion tool sales in Saudi Arabia and higher Wireline activity, drilling services, and stimulation activity in the region. Corporate and other expenses were $59 million in the second quarter, and are expected to increase by $5-10 million in the third quarter. SAP S4 migration expenses were $13 million in the second quarter, and are expected to be $20 million in the third quarter.

Halliburton is expecting strong international growth across all regions due to their differentiated technology offerings, selective contract wins, and collaborative approach with customers. The company anticipates their Completion and Production division to have flat revenue and margins in the third quarter, and their Drilling and Evaluation division to have low single digit revenue growth and 25-75 basis points margin increase. Net interest expense and other net expense are expected to remain flat, and the effective tax rate is expected to increase by 50 basis points. Capital expenditures are expected to be 6% of revenue and free cash flow is expected to be 30-40% higher than last year. The company repurchased $248 million of their common stock in the second quarter.

Jeff Miller is confident in the long-term prospects of the oil and gas industry, which is the basis for the long duration of the current upcycle. He believes that offshore operations will make up around 50% of their international revenues, and the cadence of the growth in the offshore market will take some time to get underway.

Halliburton is seeing more e-fleet contracts, which will result in more work for them in 2024 and beyond. Anderson then asked about the chatter regarding falling rig counts, softer pricing and pumping, which is likely coming from competitors who would like to pay less for the services. Halliburton is optimistic about the outlook for 2024 and beyond.

Jeff Miller explains that they have little exposure to the spot market, and that most of their work is with large private and public customers. Miller states that performance and technology are improving, which helps to drive margins and differentiate their service. He does not see any deflation in these areas, and when asked how softer conditions in the spot market influence pricing on their dedicated fleets, he states that they have little exposure to the spot market.

Jeff Miller and Eric Carre of Halliburton spoke about the company's e-fleet rollout, which will provide better performance and lower cost for clients. They also discussed the company's strong presence in the offshore business, and how they are levered towards it. They expect the Gulf of Mexico to continue to strengthen and that offshore business will be important for Halliburton globally.

Jeff Miller discussed how their company replaces equipment as it is demanded by clients and that they are not building it to replace it. He also mentioned that prices are increasing due to tightness, efficiency, and performance of their equipment, and sometimes they don't even have it which is driving prices up.

Jeff Miller and Eric Carre discussed returning capital to shareholders through stock buybacks and dividends. They committed to returning at least 50% of free cash flow back to shareholders and intend to continue to generate free cash flow to buy back shares and strengthen their balance sheet. Eric Carre mentioned that the second half of the year will be lower than the first half for North America.

Jeff Miller explains that the outlook for 2024 is consistent with the idea that gas prices will firm up and that there will be LNG takeaway and the gas market will be busy. He does not have a precise date for when this will happen, but it could be sooner due to the constructive oil prices. Miller also mentions that well productivity in the U.S. on the oil side appears to have plateaued.

Jeff Miller explains that service intensity is required to maintain productivity in North America, and Halliburton's smart fleet offering is part of their technology portfolio to help customers understand productivity. He further states that activity in North America will increase, and e-fleets are valuable to help clients achieve better productivity and lower costs. Jeff also states that North America margins will remain strong for the rest of the year.

Jeff Miller and Eric Carre discussed the improved D&E margins and how they delivered better results across product lines and regions. Stephen Gengaro then asked if there was any visible difference in pricing across the industry due to the consolidation in the U.S. frac business and better behavior from companies. Miller responded that the type of equipment being put into the market with e-fleet is a very different dynamic than before, and there is a bifurcation of performance which still matters a lot.

Jeff Miller of Halliburton believes that investment in equipment and technology is necessary for the sustainability of the oil and gas supply, and that this will be beneficial for Halliburton. Marc Bianchi of Cowen asked if Halliburton's profits or EPS would be flat or up in the fourth quarter compared to the third quarter, to which Miller responded that everything is intact and that the direction is positive.

Jeff Miller states that OPEC cuts have no effect on activity, and Eric Carre explains that they gave guidance on their corporate and SAP numbers separately, and will give more color on a quarter-to-quarter basis. Kurt Hallead asks if there is an acceleration of activity in the Middle East or Latin America, to which Jeff Miller states that OPEC cuts have no effect on activity.

Halliburton is expecting steady growth in activity over the long duration of the cycle, with potential for acceleration in fits and starts as big projects get started. The company is focusing on e-fleet and long-term contracts to outpace the market, and is expecting high demand for their services and technology in 2024.

Jeff Miller concluded the call by expressing his confidence in Halliburton’s ability to deliver better returns, more free cash flow, and more cash to shareholders in the long-term. He thanked everyone for participating and closed out the call.

This summary was generated with AI and may contain some inaccuracies.