Halliburton 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Nearly 30 B in revenue, strong international revenue growth

“specifically for the full year our Eastern Hemisphere grew a remarkable 17% with profit growth of 23%. That coupled with a solid year in North America resulted in a record year for the Company with revenue totaling $29.4 billion.”

North America stable

“The volatility of the past few years is evolved into a more stable market environment. In the fourth quarter of 2012, if you recall, we called the bottom on our North America margins and we were right. We’ve seen a marked improvement in margins since that time.

For 2014 we are now forecasting U.S. spending to increase in the mid-single digit range based on recent moderations in liquids pricing outlook. Of course, we naturally believe our growth rates will exceed that increase in customer spend, given our strong position in North America.”

Expect increase in rig count in NA due to expanded horizontal drilling in Permian

“We expect the U.S. land rig count to modestly increase in 2014, driven primarily by the continued shift to horizontals in the Permian basin. The Permian started 2013 with less than 35% of the rig count running horizontal, but we anticipate more than half the rig count will be horizontal by the end of 2014.”

Situation in Brazil expected to get worse in 2014 from already depressed levels

“Petrobras has recently said the deepwater rig count for 2014 will be even less than the already depressed levels of 2013. The entire services industry in Brazil is looking for relief to the over capitalization as that has occurred there in anticipation of a much higher deepwater rig count. No relief has been forthcoming at this point.”

Mexico also weak, in transition for HAL

“In Mexico, reduced activity levels on land are expected to continue through the first half of 2014, as we transition from our prior South Alliance 2 projects to already identified new opportunities in the country.”

Dynamics of pricing and bidding on contracts in Mexico

“The Mesozoic work by contrast has extremely complex geology resulting in fewer qualified bidders and will likely result in better margins and returns.”

Latin America is difficult in general

“We believe that 2014 will be a very challenging year for Latin America. The uncertainty around the timing of when we will be able to right-size our cost structure in Brazil coupled with the delays to the submission of the mega tenders in Mexico have meet our growth expectations for 2014. Ultimately however this does not change our long-term outlook for Latin America.”

North America got off to slow start because of weather disruptions, but activity has since recovered

“Several areas including the Bakken, Permian Basin and Marcellus got off to a slow start in January due to weather disruptions, but activity levels have since risen. We expect first quarter activity levels to be similar to the fourth quarter as our completions calendar is looking very active over the coming months”

Opportunities in both onshore and offshore

“there are number of onshore opportunities as well. We think about Russia and China and then certainly the Middle East. So there is a robust onshore market out there. So I think that they’re evenly weighted and I wouldn’t take one over the other.’

Competition getting pretty aggressive in pricing Mexico contracts

“I think we were little surprised by some of the pricing that we saw. I got to think even that there were fewer contracts to go after and there were number of bidders in the bidding for the ATG projects, but pricing on those was significantly down and surprisingly down.”

Drilling efficiency low hanging fruit is picked, but still some runway for more gains

“I think clearly the low-hanging fruit has been picked. Right now, I don’t see any reason why we will not continue to get year-over-year well count efficiencies. You’re starting to see sort of a massive upgrade to the rig fleet that’s out there. The move to pad drilling, obviously I think is one of the real drivers we saw last year in terms of the efficiency gains. But as I mentioned in my remarks, the Permian now is switching from what was really a vertical to a horizontal market and there are a lot of rigs running in the Permian right now. And I think that gives us confidence in driving the numbers for 2014 and even beyond that, because let’s say the Permian’s only at 50% at the end of 2014. That still leaves a pretty tremendous upside there. And there’s other plays in the U.S. that are still moving toward more pad, more horizontal drilling. So I think just the nature of the transition of the market, the new technologies that not only Halliburton and the other service companies have, but the rig contractors are investing more in efficiency. So I don’t really see an end to it at this point in time, but I think your big low hanging fruit’s been picked at this point.”

Service industry unanimously looking for relief from commitments to Petrobras

“I mean the service industry generally doesn’t agree on all things all the time but I can tell you, this is one where both us and our peers are all in having the same discussion with Petrobras. We all really need relief at this point.”

Still a lot of room for better efficiency in completion

“we’re seeing more stages but we’re also seeing bigger stages and we’re seeing the ability to do more things around the completion. So the concern around the completion outpacing the drilling is not necessarily a concern for us.”