Halliburton 4Q15 Earnings Call Notes

Dave Lesar

Customer flight to quality means decline less than the market

“From the 2014 peak, our completions-related activity declined approximately 33% relative to a 64% reduction in the US land rig count. This clearly again demonstrates the customer flight to quality that has emerged during this downturn and positions us well for the market’s eventual recovery.”

DoJ said that proposed divestitures are not enough in Baker Hughes acquisition

“In December, the DoJ informed us that they do not believe that our previously announced proposed divestitures are sufficient to address the DoJ’s concerns, but acknowledged that they would assess further proposals.”

Merger agreement would not necessarily terminate automatically if approvals have not been received by April 30

“In the event regulatory approvals have not been received by April 30, the merger agreement does not terminate automatically. Both companies may continue to seek regulatory approval or either company may terminate the merger agreement.”

Most challenging downturn since the 80s

“Now this has certainly been the most challenging downturn that I’ve seen in my many, many years in business. We expect the market will continue to remain challenged in 2016 and that it will be the first time since the late ’80s that global upstream spending will decline for two consecutive years.”

The longer recovery takes, the sharper it should be

“Now there are a number of moving parts in North America and my experience has taught me not to bet on the exact timing of a recovery. But we do expect that the longer it takes, the sharper the recovery will be.”

2016 is going to be a tough slog through the mud

“2016 is simply going to be a tough slog through the mud, but I can tell you we’ll do what we have to do. We know what buttons to push and levers to pull and we will. We believe our customers will remain focused on cost per barrel optimization and gaining higher levels of efficiency, both of which bode very well for Halliburton.”

Right now our customers don’t even know what they are going to spend, where or when they’re going to spend it

“I’m talking almost every day with the CEOs of our customers and I would say that it’s a real challenge out there. And I guess the way I would sum it up is there is sort of a constant revision of budgets going on and those revisions are clearly with a downward bias. So the way I would describe it is, right now, our customers don’t know what they are going to spend, where they are going to spend it and when they are going to spend it in North America at this point in time, which is why I made the comment earlier we really are trying to run the business on literally a week-by-week, crew-by-crew, unit-by-unit basis until our customers see some stability in pricing where they can then put a stake in the ground.”

There’s a big difference in the way that business is done in international markets vs the US

“the way you do business between international markets and the US market is also quite different. With the drilling and completion efficiencies that we’ve gotten in the US, the time to drill and complete a well has been dramatically reduced, which means the time between when you can price what does a frac cost or what does drilling cost or what does a mud job cost is very dynamic, very real time and it’s very transactional. The international market still continues to be a long-term contract market. So the discussions that you have with customers around price concessions and scope changes is typically done within the context of an existing long-term contract, which gives you more of a seat at the table and more of an ability to convince the customer that what you’re delivering is adding value or that you have ideas where their contracts can get more efficient and therefore reduce their cost per BOE.”

Jeff Miller

It’s going to be tougher this year

“Yes. So if we look at ’16, I mean, it will be a tougher slog in ’16, no question. I mean, we’re seeing fairly constant pressure around negotiation and tenders. But, in some cases, we are having what I would say positive collaborative discussions with clients around how to reduce uncertainty, increase system efficiency.”

Half the equipment is idled but service intensity is going up

“Attrition is really the story here and consistent with remarks before, we see today about half the equipment is idled. That’s equipment that’s not being maintained and is being cannibalized for parts more broadly. The service intensity, believe it or not, continues to creep up. So we saw a 9% sequential increase in profit pumped on a per well basis, which means equipment is working harder than it ever has.”

International is typically more resilient because the economies are built around the production of oil

“one of the things that we typically see internationally obviously that cycle lags the US cycle. And again these are also economies, in many cases, that are built around production of oil and gas. And so from an activity perspective, they tend to be, on a relative basis, more resilient.”