Halliburton 3Q16 Earnings Call Notes

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Halliburton’s (HAL) CEO Dave Lesar on Q3 2016 Results

NA revs grew for the first time in 7 quarters. Animal spirits are alive if muted

” Our North America revenue grew 9% for the period, representing the first revenue increase in seven quarters. Our results improved as we took advantage of the rig count growth by focusing on increasing utilization and working our surface efficiency model. Our customers’ animal spirits remain alive and well in North America even though for some they may feel caged in a bit by cash flow constraints in the short-term. The average U.S. rig count increased 14% over the quarter, driven primarily by rig additions to smaller operators where we saw a trend of less service intensive wells, which is not activity typically worth chasing at today’s pricing.”

Customers may delay some drilling until 2017 but getting better

“Now, looking ahead to the fourth quarter on North America land, activity levels are difficult to call at this point. Based on current customer feedback, we remain cautious around customer activity due to holiday and seasonal weather related downturns. Our customers may take extended breaks, starting as early as Thanksgiving and push additional work to the first quarter of 2017. As one customer told me, Dave, it doesn’t make any sense for me to rent an efficient high-spec rig, if I have to start and stop all the time for the holidays or the last five weeks of the year. I just can’t get the efficiencies I’m paying for in the rig. I would rather just wait till next year to start drilling. And I believe we will see a lot of that mentality in the fourth quarter. But that being said, it does not change our view that things are getting better for us and our customers.”

International rig count should bottom in 1H17

“We expect to see a bottoming of the international rig count in the first half of 2017. Land-based mature field activity should lead the international recovery, while we expect the deepwater complex to remain so severely challenged for the foreseeable future. Even though the light at the end of the tunnel is getting brighter, there is no question we remain in a very challenging market.”

North America is the swing producer

“As we have said for some time, North America has assumed there role of swing producer in global oil production. Because of this shift away from production discipline, which was historically created by OPEC, our industry will likely experience shorter commodity price cycles going forward. So, we see the future market as a combination of shorter cycles and range-bound commodity prices. ”

The last cycle of $100 oil covered up terrible inefficiencies across the industry

“keep in mind, the last cycle of $100 oil covered up terrible inefficiencies across the industry. In today’s environment, asset utilization will be just as critical to improving margins. And I have full confidence we’re taking the necessary steps to achieve that. Positioning us for success while navigating through this deep cyclical downturn was one of the most intellectually stimulating management challenges we have ever had. ”

Still need oil above $50 to see meaningful increases in activity

“the North America unconventional market has responded the quickest demonstrated by the increase in recent rig count activity. However, we continue to believe meaningful activity increases from our customers will not start until we see sustainable commodity prices above $50 per barrel. “‘

Our customers are smart

“listen, our customers are smart, they see 2017 shaping up to be better and they’re going to try to lock in as much time and price as they can at this point in time.”

Jeff Miller

Still in oversupplied equipment market

“So, let’s start with North America. While the supply and demand balance for U.S. onshore services is heading in the right direction, we are still in an oversupplied equipment market. Our customers remain focused on cost and producing more barrels. ”

Pricing is still a brawl

“Pricing is still, yes, I’ll describe it overall as a brawl. As I said, we’re always pushing on pricing. We’re seeing small increases in different basins, but where we’re most focused around those customers with whom to collaborate the best. And I’ve always said that the tightening of utilization was a critical first step and we are beginning to see that”

The rock is different in every basin

“It’s always important to remember that Halliburton operates in every basin across the whole of North America. And what’s happening just in the Midland or Delaware, in the Permian isn’t — every basin, every rock is different. And so, we go to market where the customer needs to get the best well in those markets. ”

International usually lags North America by 6-9 months

“The international business traditionally lags North America by six to nine months. So, that’s just sort of broadly across all of the markets in terms of activity. And we’re continuing to see and if you look at sort of geographically outside of the resilience in the Middle East business, there’s been a substantial decline in activity commensurate with the commodities”

[Analyst Comment]

rigs going back to work may be driven by PE money

“There has been a lot made about the rigs that have gone to work so far have been low calorie rigs, private companies by private equity sponsor drilling wells, primarily in the Permian and trying to drill as cheap as they can. It would seem that in your market share progression that you’ve gone after bigger companies that work 24/7 that the drill complex wells. Has the move so for off the bottom been a rig count that is not clearly beneficial to you guys and is that one of the issues that will be solved as we get into 2017 and more established companies pick up drilling?”