Halliburton Company (HAL)

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Halliburton Company (HAL)

Barclays CEO Energy Conference

September 11, 2013 07:45 AM ET


Jeff Miller - EVP and COO

Mark McCollum - EVP and CFO


James West - Barclays Capital


James West - Barclays Capital

Okay. Good morning everyone and welcome to day one of the 27th Annual Barclays CEO Energy Conference. I’m James West; I run the U.S. oil service equipment and joint team. I’m pleased that you all who have joined us this week, we’ve a jam pack three days of keynotes presentations breakout and one-on-one meetings. Roughly 220 energy companies participate in this year’s conference making it the largest ever and we’re expecting a record attendance. I trust everyone will be very busy and hopefully have a very productive conference.

Before we get started, as all of you know today is the 12th anniversary of the September 11th attacks on New York City and other areas, an event that affected all of us in this room in many different ways. To show our respect for those who lost their lives in the attacks, I would like to invite all of you to join me in a moment of silence. Thank you.

Kicking off the conference, and once again this year is Halliburton. I’m pretty sure those of you that know my work and that we believe still Halliburton is by far in a way one of our favorite stocks, one that we think has considerable upside potential from current levels, given that the company just bough back 3.3 billion worth of shares, it seems that the Management Team and the Board agree at least with that assessment, the stock is undervalued.

Leading off the presentation this morning for Halliburton is the new named -- clearly new named COO, Jeff Miller. I believe this is Jeff’s first time speaking at our conference. Jeff was named Executive Vice President and Chief Operating Officer in September of last year. Previously Jeff was Senior Vice President of Business Development and Marketing. Before that post, Jeff previously ran the Gulf of Mexico, was President -- Vice President of Baroid and Country Vice President for Indonesia and also for Angola.

During Jeff on stage and speaking in today as well is Chief Financial Officer, Mark McCollum. Mark joined Halliburton in 2003 from Tenneco as Chief Accounting Officer. He was named CFO in 2007. Please welcome the COO into the conference, Jeff Miller.

Jeff Miller

Okay. And thank you James and good morning everyone. We are all familiar with the Safe Harbor statement, but before we began, I would like to remind the audience that some of my comments may include forward-looking statements reflecting Halliburton’s views around future events that could differ materially from our actual results.

And so with that let me dig right in and talk about service intensity and maybe a couple of ways to look at that. What you see on the slide is the rig count projected from 2005 through 2015. And as you would expect really that’s been – the exception of a little bit of a flattening in 2013 we expect to see continued increases in the out years on now through 2015. But I think what’s important here is to look a little bit at what’s going on behind the rig count and behind this effective secular trends and so when we overlay the global drilling and completions of [sand] against the rig count beginning in 2005, what we see is a consistent trend of rising service intensity.

Now please recall that Halliburton strategy is around deepwater, unconventionals and mature fields. We see those three themes as the fastest growing themes in the marketplace. But when we look at a rig count like I’m showing you now, it’s hard to pick those themes out of kind of the big overall trend. So what I would like to do now is look a little bit behind that, what’s going on in those counts. So let me start first with horizontal drilling.

Globally over a third of all land rigs in the world today are drilling horizontally. This is up from less than 8% in 2005. And so when we look at revenue multiplier or basically the service intensity associated with horizontal rigs versus vertical rigs, we see about a three to four times multiplier compared to conventional rig. And so this is going on kind of in the background on this slide driving service intensity.

North America leads the way in adoption horizontal drilling techniques, but there are dozens of other countries experimenting with these techniques, I will call out a couple of them, first Russia and then Mexico where horizontal drilling has become an important part of infield drilling and also enhanced recovery in mature fields.

The second key theme or story is on the offshore part of this business and that’s going on again in these numbers. There what we seen is a rig count growth of less than 1% since the inflexed point in 2005, that’s the blue bars down at the bottom. But underneath that relatively static number, what we’re seeing as a continuing bias towards deepwater capable rigs. In fact over a 100 semi-submersibles and drill ships were built into the fleet over the last four years, most of which were designed to operate on water depths greater than 5,000 feet.

Now when we think about that, a deepwater rig compared to the shallow water rig or shelf rig, the revenue intensity or multiplier is two to three times. So again, what we’re seeing is service intensity sort of built into this rig count. Now both of these trends, horizontal and deepwater, drive complexity and service intensity. That happens actually in the well design.

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