Halliburton Company (HAL)

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Halliburton Company (HAL)

Q2 2013 Results Earnings Call

July 22, 2013 9:00 AM ET


Kelly Youngblood - Senior Director, IR

Dave Lesar - Chairman, President and CEO

Mark McCollum - Executive Vice President and CFO

Tim Probert - President, Strategy and Corporate Development

Jeff Miller - Executive Vice President and COO


Bill Herbert - Simmons & Company

Jim Wicklund - Credit Suisse

Angie Sedita - UBS

Waqar Syed - Goldman Sachs

James West - Barclays Capital

Kurt Hallead - RBC Capital Markets

Brad Handler - Jefferies

Doug Becker - Bank of America

Dave Anderson - JP Morgan

Jeff Tillery - Tudor Pickering

Scott Gruber - Bernstein

Robin Shoemaker - Citi



Good day ladies and gentlemen. And welcome to the Halliburton Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions)

As a reminder, this conference call is being recorded. I’d now like to introduce your host for today's conference, Kelly Youngblood. Sir, you may begin.

Kelly Youngblood

Good morning and welcome to the Halliburton second quarter 2013 conference call. Today's call is being webcast and a replay will be available on Halliburton's website for seven days. The press release announcing the first quarter results is also available on the Halliburton website.

Joining me today are Dave Lesar, CEO; Jeff Miller, COO; and Mark McCollum, CFO. Tim Probert, president of strategy and corporate development will also be available today for follow-up calls.

I would like to remind our audience that some of today's comments may include forward-looking statements, reflecting Halliburton's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and 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, 2012, Form 10-Q for the quarter ended March 31, 2013 and recent current reports on Form 8-K.

We will welcome questions after we complete our prepared remarks. We ask that you please limit yourself to one question and one related follow-up to allow more time for others who have questions.

Now, I'll turn the call over to Dave.

Dave Lesar

Thank you, Kelly, and good morning to everyone. Overall I am pleased with our second quarter results. Total company revenue of $7.3 billion was a record quarter for Halliburton and operating income was over $1 billion. We achieved record revenues this quarter in our Baroid, Cementing, Completion Tools, Multi-Chem, and Testing product lines. From an operating income perspective, Baroid, Testing and Artificial also set new records.

Turning to the geographies, our international operations grew 8% sequentially which is at the top of our peer group. This growth came from record revenues in both of our eastern hemisphere regions. Compared to our two primary competitors, we have delivered leading year over year international revenue growth over the last five quarters. Also notable for the quarter, our international revenue comprised almost half of our total company revenue, which clearly demonstrates the success on our ongoing strategy to grow our international business and balance our geographic mix. So clearly, we are not just North America pressure pumping company.

Our Eastern Hemisphere played out as we expected. Revenue was up 11% sequentially and operating income was up 23%. I want to specifically highlight our Middle East/Asia region, which had an outstanding revenue growth of 20% and operating income growth of 43% relative to the second quarter of last year.

This is a very exciting market for Halliburton today and we expect our Middle Asia region to be the highest growth want that we have led by Saudi Arabia, Iraq and all of Asia.

For the year, we still fully expect Eastern Hemisphere margins to average in the upper teens, with year-over-year revenue growth in the mid-teens. With pricing improvement opportunities in the Eastern Hemisphere continuing to be somewhat illusive, our current operating bias is toward improving our utilization and efficiency as we address the increase spend from our customers.

Jeff will discuss the weaker than expected Latin America performance and the Mexico integrated project market in greater detail. But I want to be clear on one thing, we feel confident that revenue and margins of Latin America will improve in the second half of the year. We expect margins to improve in the third quarter and approach the mid-teens level and expect full year margins to be approximately the same.

In summary, our international outlook has not changed. We expect consistently solid year-over-year growth in several key markets. Although, there is still uncertainty around Egypt, Libya and North Mexico activity in the near-term, our deepwater share gains coupled with increase rig count in Saudi Arabia and an anticipated rebound in Latin America during the second half provide us confidence that we will continue to outperform on the relative basis to our peers.

North America also delivered results as we expected and I’m pleased with the quarter. Revenue was up 3% despite a sluggish U.S. land rig count and 71% lower Canadian rig count. We also saw 120 basis points sequential improvement in our margins to 17.5%.

We are now expecting the rig count to remain relatively flat for the remainder of the year as we absorb a meaningful switch to multi-well pad activity among our customer base. We believe this incremental drilling efficiency gains will provide for higher service intensity.

We currently estimate that pad drilling represents as much as 50% of the activity across key U.S. basins and we’ll continue to pick higher. As an example, we’ve seen the Eagle Ford growth of less than 40% pad activity last year to over 60% today.

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