Halliburton Company (HAL)

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Halliburton Company (HAL)

Q3 2013 Earnings Call

October 21, 2013, 9:00 am ET

Executives

Kelly Youngblood - Investor Relations

Dave Lesar - Chairman of the Board, President, Chief Executive Officer

Mark McCollum - Chief Financial Officer, Executive Vice President

Jeff Miller - Chief Operating Officer, Executive Vice President

Analysts

James West - Barclays Capital

Jud Bailey - ISI Group

Bill Herbert - Simmons & Company

Waqar Syed - Goldman Sachs

Angie Sedita - UBS

David Anderson - JPMorgan

Jim Wicklund - Credit Suisse

Brad Handler - Jefferies

Doug Becker - Bank of America Merrill Lynch

Kurt Hallead - RBC Capital Markets

Jim Crandell - Cowen

Jeff Tillery - Tudor, Pickering, Holt

Scott Gruber - Sanford Bernstein

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Halliburton third 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 call is being recorded.

I would now like to introduce your host for today's conference, Mr. Kelly Youngblood. Sir, you may begin.

Kelly Youngblood

Thanks, Sam. Good morning, and welcome to the Halliburton's third 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 third 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 risk 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 June 31, 2013, recent current reports on Form 8-K and other Securities and Exchange Commission laws.

Our comments include non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our third quarter press release which, as I have mentioned, can be found on our website. In our discussion today, we will be excluding the financial impact of the third quarter charges related to employee severance and asset write-offs, $38 million after-tax or $0.04 per diluted share unless otherwise noted.

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 will turn the call over to Dave.

Dave Lesar

Thank you, Kelly, and good morning to everyone. Before I talk about another strong quarterly performance I would like to review the actions we have taken this year around our commitment to delivering shareholder returns to you. This year, we have repurchased approximately 4.4 billion or 10% of outstanding shares. Earlier this year, we announced a 39% increase in our dividend. These actions reflect our continued confidence and the strength of our business outlook.

Going forward, we remain fully committed to increased shareholder returns. We are targeting a dividend payout of at least 15% to 20% of net income, supplemented by additional systematic share buybacks while leaving room for any capital spending or acquisitions we may want to do. We have been and will continue to be relentlessly focused on delivering best-in-class returns.

Now, moving to the third quarter. Overall, I am pleased with our operational results. Total company revenue of $7.5 billion was a record quarter for Halliburton, while operating income was over $1.1 billion. We achieved record revenues this quarter in our Boots & Coots, Cementing, completion tools, drillbits, Multi-Chem and testing product lines. From an operating income perspective, our Baroid, completion tools, drillbits and testing product lines also set new records.

Turning to the geographies. On a year-to-date basis, our Eastern Hemisphere growth continues to lead our peer group. Compared to last year, third quarter year-over-year revenue and operating income grew 17% and 30%, respectively. Sequentially, the revenue improvement, a 9% growth in operating income was driven by our Europe/Africa CIS region.

In addition to record revenue in that region, we saw a strong sequential improvement in margins of 300 basis points, due to improved performance in our Russia, North Sea and Angola operations. Consistent with previous years, we expect the fourth quarter in the Eastern Hemisphere to be our strongest quarter of the year, due to seasonal year end software and equipment sales.

Moving to Latin America. This has been a tough year as customer activity did not meet our expectations and Jeff will talk more about our fourth quarter outlook, but as we look ahead to Latin America over the next few years, there are several positive factors coming into play.

First, Mexico activities are expect to pick up significantly as the mega tender projects ramp up in the first part of 2014. Although we do not expect a material impact next year, the recent reform discussions signal a strong opportunity in Mexico shale and deepwater markets.

In Brazil, we have a leading market share today in a number of long-term deepwater contracts, including some that could extend past 2020. Although activity levels are just treading water today, as deepwater activity level accelerates, we see significant upside in Brazil. However there could be some short-term bumps in the road, but in the long-term Latin America is expected to be an outstanding growth market for Halliburton.

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