Halliburton 4Q16 Earnings Call Notes

Dave Lesar – CEO

North America has turned the corner, but international downswing is still playing out

“Now, let me take a few minutes to discuss what we’re seeing in the market today, and our prospects and challenges for the coming year. Despite the positive sentiment surrounding North American land, it is important to remember that our world is still a tale of two cycles. While the North America market appears to have rounded the corner and is on the upswing, the international downswing is still playing out.”

Animal spirits are running but maybe in different directions

“Let’s talk about North America. On the second quarter call, I told you that customer animal spirits were back in North America. Last quarter, I said that these animal spirits were alive, but somewhat caged up. Now, these animal spirits have broken free and they are running. However, not all customers are running in the same direction or as a pack, but they are running. These animal spirits can be seen by the dramatic increase in customer M&A activity, energy industry initial and secondary company offerings, the significant private equity capital moving into resource plays and of course the increase in the rig count. Customers are excited again, and our conversations have changed from being only about cost control to how we can meet their incremental demand.”

Trading market share for better profitability

“In Q3, we told you that we were willing to strategically trade some of that historically high market share for better profitability. Clearly, the time had come to improve returns and that is what we told our customers. In Q4, as demand for our equipment increased and availability tightened, our customer discussions revolved around the unsustainable pricing that was in place and the need for us to make a return before we were willing to continue to work for them or add new equipment. If a customer agreed to better pricing, we continued to work for them, if not, we took that equipment and use it to fill the incremental demand with a customer that shared our view on how to work together and make better wells.”

US shale is swing producer, tough for deepwater to compete

“Most people agree that the U.S. is now the world’s swing producer and it has demonstrated its ability to ramp up production quickly at a price that may make it difficult for deepwater projects to compete. We believe that the race to get deepwater project cost down versus the impact on commodity prices on increasing U.S. shale production will have to play out over the course of 2017. Therefore, we do not expect to see an inflection in the international markets until the latter part of 2017.”

OUS portfolio doesn’t compete

“Yes. Jim, let me give you an anecdote. I was talking to the CEO of one of our IOC customers Friday, obviously not going to say who it was. And he said that there was not a single asset in their portfolio outside the U.S. that competes with their U.S. opportunities right now. And to me that’s a pretty amazing statement to me in terms of really how much further commodity prices have to go up to bring some of these more either highly complicated or longer duration projects to the front of the queue get an FID decision made around them.”

Jeff Miller

Talking about price increases

“First, I like talking about price increases more than decreases, it’s a nice change. Second, the service price recovery is starting from an extremely low base, in many cases below variable cash costs. Third, the level of pricing that satisfies a particular service company depends on where they are on the profitability continuum. Finally, even though the industry is starting in different profitability levels, every company will have to march back up the same path to profitability.”