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Halliburton Company (HAL)

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Halliburton Company (HAL)

Q3 2017 Results Earnings Conference Call

October 23, 2017 09:00 AM ET

Executives

Lance Loeffler - VP, IR

Jeff Miller - President and CEO

Chris Weber - CFO

Analysts

James West - Evercore ISI

David Anderson - Barclays

Bill Herbert - Simmons & Company

Angie Sedita - UBS

Jud Bailey - Wells Fargo

Jim Wicklund - Credit Suisse

Timna Tanners - Bank of America/Merrill Lynch

Scott Gruber - Citigroup

Chase Mulvehill - Wolfe Research

Sean Meakim - JP Morgan

Kurt Hallead - RBC Capital Markets

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Halliburton Third Quarter 2017 Earnings Conference Call. At this time, all participants are a listen-only mode. Later, there will be a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call may be recorded.

I would now like to introduce your host for today’s conference, Lance Loeffler, Halliburton’s Vice President of Investor Relations. Sir, you may begin.

Lance Loeffler

Good morning. And welcome to the Halliburton third quarter 2017 conference call. As a reminder, today’s call is being webcast, and a replay will be available on Halliburton’s website for seven days. Joining me this morning are Jeff Miller, President and CEO; and Chris Weber, CFO.

Some of our comments today may include forward-looking statements reflecting 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, 2016, Form 10-Q for the quarter ended June 30, 2017, 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. And unless otherwise noted, in our discussion today, we will be excluding the impact of the second quarter fair market value adjustment related to Venezuela. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our third quarter press release, which can be found on our website.

Finally, after our prepared remarks, we ask that you please limit yourself to one question and one related follow-up during the Q&A period in order to allow more time for others who may be in the queue.

Now, I’ll turn the call over to Jeff.

Jeff Miller

Thank you, Lance, and good morning everyone. Overall, we had a fantastic quarter and I’m very pleased with our results. We are hitting on all cylinders just like we said we would and this quarter’s performance is another example of why Halliburton is the execution company. Here are few highlights from the third quarter.

Total company revenue was $5.4 billion, representing a 10% increase compared to our second quarter results, and we generated $1.1 billion of operating cash flow. Once again, we outgrew our peers on a global basis showing that we are taking global market share. Our North American revenue increased by 14%, significantly outpacing the average sequential U.S. land rig count growth of 6%. Total operating income increased 55% to over $630 million, primarily driven by continued strengthening of market conditions in North America and improved profitability in our drilling and evaluation product lines. Our completion and production division revenue increased 13% with 215 basis points of margin expansion, despite the approximately 50 basis-point negative impact of Hurricane Harvey. The drilling and evaluation division revenue increased 4% while operating margins expanded by 260 basis points to approximately 9%, demonstrating solid execution in our international franchise.

Finally, during the quarter, we completed the acquisition of Summit ESP, which is an important strategic step in building out our production oriented business lines and makes us the number two ESP provider in North America.

In August, the Texas Gulf Coast was severely impacted by Hurricane Harvey and our fantastic employees worked closely together to support those in our organization and the entire community affected by the storm. As a result of the weather, we had a few customers temporarily suspend activity in both the Gulf of Mexico and the Eagle Ford. We also experienced increased costs because diesel fuel was temporarily unavailable and reduced deficiency due to sand supply chain disruptions, both of which negatively affected our margins for the quarter. In spite of these disruptions, the sophistication and hard work of our supply chain organization allowed us to quickly adapt to these challenges and continue to execute and deliver superior service quality.

Let me take a moment and talk about a few things we said about North America in the second quarter call. We told you the rig count growth would plateau, and that’s exactly what it did. We said our North America sequential revenue would significantly outperform average U.S. land rig count growth, and it did. We told you that our completion and production margins would continue to expand, and they did. We said operators were beginning to optimize as opposed to maximize the use of sand and turn to technology to increase production; this trend held true as we saw average sand per well remain flat sequentially. And finally, we said we would have the highest returns in the industry, and we do as we continue to outgrow our peers and take market share.

Now, let me spend some more time on each of these topics. During the quarter, the U.S. land rig count effectively flattened as customers reacted to shareholder input and their own view of market conditions for the balance of the year. However, our revenue increased and we saw improved activity in our completions related product lines due to the natural lag between drilling and completing wells. Today, the industry is drilling approximately the same footage as in 2014 with half the rigs while completions intensity has significantly increased. As the rig count stabilizes, our customers are focused on efficiencies, optimization and making more barrels. These are all things Halliburton does really well, differentiating us from our peers.

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