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Halliburton Company (HAL)

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Start Time: 09:00

End Time: 10:01

Halliburton Company (HAL)

Q1 2018 Earnings Conference Call

April 23, 2018, 09:00 AM ET

Executives

Jeff Miller - President and CEO

Chris Weber - CFO

Lance Loeffler - IR

Analysts

James West - Evercore ISI

Bill Herbert - Simmons & Company

Sean Meakim - JPMorgan

Angie Sedita - UBS

Jud Bailey - Wells Fargo

David Anderson - Barclays

James Wicklund - Credit Suisse

Scott Gruber - Citigroup

Waqar Syed - Goldman Sachs

Dan Boyd - BMO Capital Markets

Kurt Hallead - RBC Capital Markets

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Halliburton First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Later, we will conduct a question-and-answer-session and instructions will follow at that time. As a reminder, today’s conference is being recorded.

I’d now like to introduce your host for today’s conference, Mr. Lance Loeffler, Vice President of Investor Relations. Sir, please go ahead.

Lance Loeffler

Good morning. And welcome to the Halliburton first quarter 2018 conference call. As a reminder, today's call is being webcast and a replay will be available on Halliburton's Web site for seven days.

Joining me today 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, 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 charges related to Venezuela. Additional details and reconciliation to the most directly comparable GAAP financial measures are also included in our first quarter press release and can be found in our investor download section of our Web site.

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. Let’s get right to it this morning. In the first quarter, Halliburton experienced significant challenges in North America related to rail disruptions. One of the things I’m pleased with is the way our organization executed through the sand logistics complexities in order to minimize disruptions for our customers.

The company you want to own and work with is a company that can execute through these issues and any other potential headwinds. Halliburton identified the problem, addressed it and worked through it. Business conditions are back to where we thought they would be. As a result, I really like what I see shaping up and I am confident in our ability to reach normalized margins in North America this year.

After taking into account the impact from rail, we wrapped up the quarter in line with what we expected. Here are our highlights for the quarter. Total company revenue of $5.7 billion represents a 34% increase compared to the first quarter of 2017. Adjusted operating income was $619 million driven by robust market conditions in North America.

Once again, for the last five quarters, we have delivered the highest returns in the industry. I’m very pleased with the way our North America business exited the quarter. In March, our production enhancement product service lines achieved record stage count per crew higher than at the previous peak in 2014.

Our international run rate for tender activity in 2018 is on a pace to double 2017 levels. Our Completion and Production division was impacted by U.S. rail disruption during the quarter but we still achieved a strong exit to the quarter with March margins in the mid upper teens. Finally, our Drilling and Evaluation division had strong year-over-year revenue growth of 15% with operating income growing 54%.

Today, all eyes are on North America as it continues to play a larger role as a global producer. Activity in the U.S. remains resilient as our customers have a large portfolio of economically viable projects in today’s commodity price environment. We expect our customers to remain busy through the rest of 2018 creating significant demand for our services.

The combination of steady rig count growth and completions intensity is improving demand across all of our product service lines. In addition, we believe the pressure pumping market is undersupplied today and will remain tight for the rest of 2018. Despite the incremental horsepower coming into the market, I believe this undersupply will persist as wear and tear continues to degrade existing equipment.

I’ve been saying this for a bunch of quarters; degradation is real. Roughly 50% of announced horsepower does not translate into new crews. I know this because we analyze the difference between horsepower additions announced and the related number of crews that are produced. This means that about half the new build equipment is being used to replace or add to crews already in the field.

A key driver of this degradation is service intensity which quickly translates to shorter equipment lives and higher maintenance costs. Maintenance costs are growing and the costs are real. Today, we pump three to four times sand volume through equipment compared to 2014.

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