Good day, ladies and gentlemen. And welcome to the Halliburton's Fourth Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer-session and instructions will follow at that time. [Operator Instructions] And as a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to Lance Loeffler. Please go ahead.

Good morning. And welcome to the Halliburton fourth quarter 2017 conference call. As a reminder, today's call is being webcast and a replay will be available on Halliburton's website 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, 2016, Form 10-Q for the quarter ended September 30, 2017, recent current reports on Form 8-K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or publicly update 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 those items which are detailed in our fourth quarter press release. Additional details and reconciliation to the most directly comparable GAAP financial measures are also included in our fourth quarter press release and can be found in the investor download section of our website. 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.

Thank you, Lance, and good morning everyone. Outstanding execution resulted in an excellent fourth quarter and we are in a strong position to take care of opportunities presented by a growing North America market and improving international conditions. 2017 was a dynamic year for the oil and gas sector that marked another step on the road to recovery for our industry. I am pleased with the way our Halliburton team executed our value proposition, maintained strong service quality, generated superior results and industry leading returns. I’d like to thank the outstanding employees of Halliburton for their hard work and focus the entire year and for tremendous fourth quarter. I am very excited about the way 2018 is shaping up. Commodity prices have moved up. North America unconventional activity should be very busy, international markets are starting to show signs of life and our value proposition is resonating with our customers. I will address each of these in a few minutes. But first, I want to recap the highlights for the full year and fourth quarter. During the course of 2017, we grew our market share, generated industry-leading returns and outperformed our peers across every region. We accomplished this by aligning with customers in the fastest growing market segments and collaborating in engineering solutions to maximize their asset value. Total Company revenue grew 30% and adjusted operating income tripled, finishing the year with total Company revenue of $20.6 billion and adjusted operating income of $2 billion. In North America, we told you, we would win the recovery and we did. We recognized the changing market before anyone else, moved more quickly to reactive equipment, maintained historically high market share, raised prices and captured key customers before others could, a pretty tough task to pull off and we did it. Our international…

Thanks, Jeff. Let’s start with the summary of our fourth quarter results compared sequentially to the third quarter. Total company revenue for the quarter was $5.9 billion and adjusted operating income was $764 million, representing a sequential increase of 9% and 21%, respectively. These results were primarily driven by increased global drilling activity and end of year software and product sales. Moving to our division results. In our Drilling and Evaluation division, revenue increased by 12%, operating income increased 62% and operating margins improved by 420 basis points. These increases were primarily due to year-end software sales, which were stronger than expected and increased drilling activity in the Middle East, Brazil and North America. In our Completion and Production division, fourth quarter revenue increased by 8%, operating income increased by 5% and operating margin was generally flat. Revenues were up primarily due to improved pressure pumping activity and pricing in U.S. land, completion tool sales in the Gulf of Mexico and Latin America, and increased stimulation activity in the Eastern Hemisphere. The operating margin was impacted by the seasonality and cost inflation headwinds that just Jeff described. In North America, revenue increased by 7%, primarily driven by increased utilization and pricing throughout the United States land sector in the majority of our product service lines, primarily pressure pumping as well as higher drilling activity and completion tool sales in the Gulf of Mexico. Latin America revenue increased by 16%, primarily driven by increased drilling activity and software sales in Brazil, as well as higher software sales in Mexico and increased stimulation activity in Argentina; these results were partially offset by reduced drilling activity in Venezuela. Turning to Europe, Africa, CIS, we saw revenue grow by 7%, primarily due to improved drilling activity in the North Sea coupled with increased activity…

Thanks, Chris. Let me sump it up. I’m really happy with our 2017 results. They reflect our successful strategy and execution and put Halliburton in a great position. I’m excited about what I see for Halliburton in 2018. The macro is self-correcting. Commodity prices have improved. Unconventional activity is strong. The international markets are recovering. We expect to generate significant cash flow. Our value proposition is resonating with customers. And all of this together will continue to result in industry-leading returns. Now, let’s open it up for questions.

[Operator Instructions] And our first question comes from Jim Wicklund of Credit Suisse. Your line is now open.

Good morning, guys. Good quarter, that needs to be said. This quarter that as we said. My question instead of dealing with domestic really is about international. We all talked last year about how the rig count probably bottomed in the middle of the year but pricing was difficult. Jeff, you mentioned that it started to improve a little bit in the second half. Can you talk about how far concessions and pricing went down and what’s going on with pricing internationally now?

Yes. Thanks, Jim. We’re in every market around the world, so we have great visibility into that. And the short answer is there still a lot of pressure. When I describe green shoots, I’m talking about activity. But that activity is spread thinly. A lot of capital available in the marketplace, and because activity is spread thinly, it doesn’t create the kind of tightness for a price inflection. And then, the concessions given were significant and in some ways continuing into 2018, some of those haven’t even been implemented. So, look, trust me, my tone is changed and I see price inflection, but I don’t think it’s until later 2018 and certainly we will see it in 2019.

And just continuing on that, I know you had talked last year about the hope and expectation that we would get to normalized margins in the U.S. market and you made that comment again that you expect to get there in 2018 for domestic. When do we hit normalized margins over the next couple of years in the international sector? I know that’s a big crystal ball question, Jeff. But I mean, just in general, how many years do you think it will take before we reach the level that we’re getting to in 2018?

I think it’s not this year, it’s not probably 2019. It takes -- that ramp is slower, Jim, because of contractual nature of the market and it’s really driven off of, first and foremost, tightness in the U.S. But, what we are seeing is I think the kind of commodity price support that will build that confidence with our customers, which will then create the tightness, which then creates the path back. And so, and I guess, my last comment on that, I think our value proposition is perfectly suited to drive back towards those normalized international margins, because we are so focused on maximizing asset value. And I think quite frankly that paradigm will continue.

Well, I'd rather see a staged recovery, first domestic and then international that last a couple of years than everything peaking at the same time. And that sure doesn't look like going to happen. Jeff, thank you very much. I appreciate it, guys.

Thanks, Jim.

Thank you. And our next question comes from James West of Evercore ISI. Your line is now open.

Hey, good morning guys and great quarter.

Good morning, James.

So, I want to continue on international side, because clearly North America is going to be great this year and I'll let others talk in detail about that. But, on the international recovery that you are discussing, I know we talked about some seasonality of course in 1Q, but how should -- and I know you talked about uneven, but how should we think about one kind of the timing of those green shoots starting to show up in revenue? And then, I guess, two, which markets, which geographic markets are you say more excited about?

Yes, thanks. So, I think that that progression is ratable as how I would describe that. I think, we see growing confidence and added rigs sort of progressively through 2018, obviously with some inflection coming later in those stages, as I've said. But, I don't see it as a spike. It's a confidence building and we grow into that activity. But, what I’m most excited about internationally would certainly be North Sea. I think that's a market that's going to have legs in 2018 and we'll see activity growing there. And we're certainly excited about how we're positioned there, clearly excited about I think Middle East broadly. Again, I think we'll continue to be resilient and will have some pockets of better activity.

Okay. And then, I believe over the last kind of two or so upturns, you've built out the international infrastructure for Halliburton. You have most of -- you deployed most of the capital I think that you probably need to; you’ve got the market share that supports that cost structure. Although, you always want more, I get that. But, it seems to me like, and correct me if I'm wrong, but you don’t really need to deploy a lot of capital. This is more of a let's just soak in the revenue when it comes and get very good incremental margins or cash on cash returns as the cycle takes off internationally, is that fair?

Yes. That is fair, James. I mean, look, we're very excited about that franchise. And I've said that throughout even the downturn that investment that we made four years ago, five years ago and building out that footprint that is a valuable piece of franchise. And yes, capital is largely in place to execute on that. And that should be a very good business for us.

Thank you. And our next question comes from Angie Sedita of UBS. Your line is now open.

So, Jeff, turning back to the U.S. a little bit. When you think about the market in 2018, just industry wide, have you done any work or any thoughts on how much newbuild equipment to be coming into the market in 2018 from the industry? And how much newbuild equipment could come in where you think it would be a concern as far as tampering or dampening the outlook for pricing?

Well, Angie, I think, the activity in the market -- the market to start with is undersupplied. We’re well aware of what’s in the marketplace today and/or that’s going. And everything I see given the increasing intensity in completions, actually the drawing in of that ratio of rigs to spreads, which from 4 to 1 to 2 to 1, which really is an example of what that intensity looks like gives me a lot of confidence that it stays tight. And that metric I’m talking about doesn’t take into account wear and tear on equipment, which I think we’ve demonstrated is quite real, certainly through the downturn as we look at equipment that never came back in the market and the way that it’s working right now.

And then, in 2017, it really was a big focus on your legacy equipment and where we stand today, how much of that equipment is still beneath the market as far as the spot, and thoughts on timing there?

Well, I think from my perspective that has -- I said, originally that would take about four quarters and it’s taken about four quarters for things to turn over. So, as we look ahead, we’ve got a lot of ability to move -- because of the tightness, opportunities with pricing as we go into 2018. In fact, I’m quite confident that we’ll see all three of our levers executed that being price, utilization and technology.

And the next question comes from Jud Bailey of Wells Fargo. Your line is now open.

I wanted to ask for -- maybe we could get a little more color on how to think about margin progression for both C&P and D&E, both for the first quarter and just thinking about the rest of the year. I know, internationally, we’ll have a pullback seasonally, but it also sounds like in the North America, you still expect to get the normalized margins. You had some seasonality, which impacted you in the fourth quarter. So just trying to think about progression for both of those businesses for the next few quarters. If you could put some color around that would be great.

I mean, in line with our guidance, I mean, expect Q4 to be down. You’ve got the typical benefit of year-end product sales in the fourth quarter and seasonal pullback in activity in the first quarter in certain international markets. But going forward, looking at C&P very much in line with what Jeff said, normalized margin target is still there and we’re working towards it. And for us to be able to do that, C&P is going to have to be a big driver of that, and so, very much committed to achieving that sometime in 2018.

Okay. But I guess, it’s fair to think that if you were to hit normalized margins, you’d probably do it before, certainly before the fourth quarter, given the seasonality impact. So, you’d hit it during the one of the high points of your typical -- your best two quarters or typically the second, third quarter. Is that a fair way to think about it though?

Yes. I mean, we certainly are confident we get there. And yes, it starts with customer urgency, which we see; it starts with -- the second component of that is to be sold out, which we are. So, those two give me a lot of confidence around our ability to move on price. And to deliver, when we deliver, to deliver the 20% normalized margins. Obviously, C&P division will be performing very, very well. D&E just to follow that up, D&E is solid business for us. And I talk about our franchise. We expect to see -- D&E has made consistent progress through the downturn, both in share and margin recovery. And so, I suspect that we continue with that also for the fullness of the year.

Got it. I appreciate that. And then, if I could ask -- just step back and ask you about international again. You've obviously -- you've highlighted last couple of quarters have been very strong. You're taking share as you noted. Could you maybe just give us a little more color on where do you like you've executed your international strategy the best, whether it would be product lines, regions? Maybe just give a little more comments, because your performance has been quite strong. And so, I would like to just get your thought on where you’re most pleased and where you're executing and then how you see the market in 2018? Thanks.

Well, look, for us it all starts with our value proposition which is to collaborating engineered solutions and maximize asset value for our customers. But, if we think about that like a platform and then we add superior assets to that, then, our team is very effective at delivering integrated solutions where it’s a project management type outcome, but also discrete solutions. And so, I'm very pleased with clearly what we've done in the Middle East and what we've done in Brazil and all around the world. But, it really comes back to service quality, is fantastic and when we deliver that. All of our solutions are well-aligned with our customers. And that again takes a geographic view as well as a service line view, because we're aligned with maximizing asset value for our customers. And I think that's a key paradigm and the feature that we believe in and that's what we do.

Thank you. And our next question comes from Bill Herbert of Simmons & Company. Your line is now open.

Good morning. Chris, I assume that when we're speaking of your targeted 20% normalized margin, that's for North American C&P. And I'm just curious as to what the spread is right now between North American C&P margins and overall C&P Margins. In other words, what overall C&P margin do we have to hit over the course of 2018 for you to hit your, quote unquote, targeted normalized margins?

Normalized margins obviously focus on North America. C&P is the biggest driver of North America results. And so, those are going to need to be in line.

Okay. So, basically, effect -- you say in line, so we would expect to hit an overall C&P margin to 20%?

Then they’re going to need to be in line.

And what do you mean by that?

In same ballpark.

In think there are other components to that. I think we've described that as having -- it's got international activity and it has got various different things in it that comprise that. But, I think it's a good surrogate for what we see in North America.

Okay. That's great, Jeff. Thanks. And then, so, I -- different point is, we’ve had -- I mean, you explained it very candidly and very clearly with regard to some of the constraints in the fourth quarter in terms of margin in relation to revenue uplift in Q4 for C&P. If you're going to hit kind of a high teens or even 20% margin in 2018 for C&P, even taking into account the seasonality in Q1, then, you guys must have a pretty strong line of sight in terms of pricing realization, net pricing improvement over the course of 2018 in order for you guys to hit that margin because typically, you guys are pretty comprehensive and complete with regard to formulating your guidance.

Yes. That’s what we see. I think, again, I’d describe it in terms of levers, so price is an important part of that, but as is some of the other things.

Okay. And Jeff, you talked about the fact that you are sold out for the first half. Does your frac calendar -- is it starting to substantially populate for the second half of the year?

Yes. I mean, Bill, when I say foreseeable future, it’s kind of out as far as I can see. Now, it has limits in terms of where is that -- visibility perfect or not. But, yes, I’m confident that we have, works in 2018 and that’s why say, I am really excited about 20018.

And then, finally for me, we’ve got a sort of historically tight domestic labor market and an especially tight labor market in the Midland basin and other energy markets, North Dakota, Oklahoma, Louisiana and Texas as a whole. And the difference between the unemployment rates today versus where we were that kind of trough unemployment rates in 2008, 2014 is that we have a lot of runway for the growth and what looks to be a sustained increase call on U.S. production. How are you dealing with these labor constraints, given this tight market and what is expected to be even tighter going forward?

Yes. Bill, I trust in the strength and sophistication of our HR organization. We’re the biggest service company in North America and that means we operate the business. I think we operate it across the entirety of the U.S. though as you say some markets are tighter than others. But, we’re able to recruit and even non-traditional -- clearly recruit in non-traditional oilfield markets as well. And these are really good jobs in the oilfield. And so, we mitigate the labor issues through the national recruiting effort. And it’s important to remember that this is the same human resources machine that hired 21,000 people in 2014. So, I’m confident that we find the people to do the work.

And our next question comes from Scott Gruber of Citigroup. Your line is now open.

Jeff, just following on the normalized margining question for C&P. How do you think about normalized margins in the D&E segment? I realize it will take a longer to get there given the international exposure, but roughly where would you peg those at in the new environment, but after all your share gain?

Look, I see them in the same ballpark just over maybe a different timeframe. But certainly, I mean, those businesses are substantial; they’ve got great value propositions, they have grown share, delivering terrific results as well. I think about for example, I could pick on individual technologies, but it is BaraShale Lite for example, a fantastic breakthrough and fluids technology that does two things. It actually improves efficiency and it’s just a better solution. So, we’ve got a number of those and those are the kind of things that as they get rolled out, move margins up, it takes share to start with though.

And then, Jeff, you had positive commentary on pricing during your remarks, typically investors to take that and interpret it as positive pricing for frac. But, we're also hearing about positive traction across a lot of the minor product lines in the U.S. today. Can you put some color on the pricing trends you're seeing in cements, wireline, directional coil? You have underappreciated exposure I think to some of these product lines. So some color here would be great. And do you actually see greater pricing traction in these wirelines versus frac or is about on par today?

Look, I think, you see all of that to a degree moving together. We'd always said that, those didn't fall. Other service lines didn’t fall as faster as far as frac. And so, the comeback would be less dramatic and pronounced than frac. But clearly, there is a flight to quality around those other service lines as well. And we do have pricing traction in those other service lines.

Thank you. And our next question comes from David Anderson of Barclays. Your line is now open.

Good morning, Jeff. So, E&P capital discipline has been one of the themes we've been hearing about quite a bit. I was wondering if you could give us your take on how you think E&P behavior is changing or could change with this cycle? Kind of hearing some of the E&Ps are talking about trimming some of their rig counts but they're selling to using some lower pricing. Can you give us your sense of what your conversations are like right now as we kind of start with 2018 and kind of how you think E&P behavior could change?

Yes, great question. And look, we listen to our customers. And because we listen and don't lecture, we understand the message that they get from their shareholders. And there are many different customers with many different strategies. Clearly, there is a group that's interested in generating more cash and being more disciplined. There is another group that has acreage that they absolutely want to prove up and their stakeholders want them to do that. And so, I think you can't think North America was a single brush certainly in that regard. But, what I can tell you is that those sets of customers are going to be working and busy in 2018, and I expect busier in 2018 than they were in 2017.

And then perhaps we can go back to on the capacity side, you made a few comparisons with 2014. And perhaps maybe one comparison I’m very interested in is how you think about the useful life of your frac equipment in 2014 versus today. And then, within that context with the amount of capacity that’s coming on in 2018, do you have a sense as to how much do you think needs to replaced for attrition? We've heard various numbers, I was curious your take as to what do you think that attrition number is?

Yes. I think I'll start with attrition. And I think attrition is a real dynamic, though it may take the form -- I used the degradation on the call this quarter, just because in many cases what happens it become too expensive to bring back. But, there is a quite a bit of cost associated I think for the industry in terms of keeping that equipment in the marketplace. So, that's a real number, but it's difficult to give you a number on that though it drove -- if you try to look at what was in the market before the downturn, what did make it back out for the downturn I think is indicative of sort of the pace of degradation or attrition that happens. But, the market today clearly is undersupplied in our view. And, I think you ask about increased intensity or more stage counts and longer later is going to drive more wear and tear on equipment, which is simply the number of reps. When I compare it to 2014, I am more confident just because we've increased or we’ve deepened the amount of Q10 technology we have in the market which consistently bears up better to that kind of stress, ergo the reason we’re able to execute with less horsepower on location than what we see in the market.

And the next question comes from Waqar Syed of Goldman Sachs. Your line is now open.

First for Jeff, in the past, you’ve given numbers on how the frac sand intensity per well has been changing, any updates on that?

No, Waqar. I mean, it’s just kind of down the middle. I would describe -- that dynamic is really what I think optimization looks like. And so, we will keep an eye on that, but we haven’t seen a lot of change in the last quarter.

And then, at our energy conference in early January, many of E&P remarked that they were seeing broad based service price inflations in the range of 5% to 15% in the U.S. Now, would you agree with that kind of range or do you think that that number still underestimates maybe what the price inflation could be in 2018?

I think that underestimates it. But, I’m not going to call on where we see pricing. That’s certainly competitive for us and I think it’s also a function of where you are in the marketplace. Where you start, drives what that percentage is. But, nevertheless, tightness and urgency, which all of this begins with customer urgency, which clearly we see today is the support for that price.

And then, just one final question. You mentioned about stimulation business picking up outside of the U.S. as well. I can see it in Argentina and maybe Saudi. Are there any other market as well, where the stimulation business is increasing internationally?

Look, primary activity being as we’ve always said Argentina from an unconventional perspective has the kind of rocks and the beginnings of infrastructure that make that, we’re very excited about that. We’ve got solid pumping businesses in a number of markets around the world that we’re excited about. And I’m always also excited about the ability to apply multi-staged frac to tight reservoirs and what have been sort of historically under-produced reservoirs. So, you see those in a few other countries around the world and also in some offshore markets where we create value.

And the next question comes from Sean Meakim with JP Morgan. Your line is now open.

In the prepared comments, I don’t think I caught a CapEx budget for 2018. So, maybe you could just give us a sense on what your spend is going to look like this year and maybe what kind of flex there could be in North America depending on what the market gives you?

Yes. So, we -- right now, we said in the call that 2018 CapEx would be in line with D&A. We think D&A is going to be around $1.6 billion in 2018.

And then, just one more point of clarification. On the one key you guided, you talked about half of sequential drop you’ve experienced historically just given the faster start in North America. Was that an earnings-before-taxes comment or was that EPS, just curious how tax reform impacts the sequential change there as well?

Yes. That’s EPS. And obviously, tax reform does impact, but don’t forget, we have the -- we’re losing that interest accretion on the promissory note in Venezuela. So that’s why we guided to the higher net interest expense in the first quarter. Those could -- it's going to be a push.

Thank you. And our next question comes from Timna Tanners with Bank of America/Merrill Lynch. Your line is now open.

I would follow up if I could on Chris's comments about being actively evaluating options to use cash. Just, I'm not expecting you to lay it all for us, but to the extent possible if you can give us any thoughts on timing, order of preference and where you'd like to see some of your debt metrics going forward. Thanks.

Yes. So, we've discussed before, we’ve got that $400 million maturity coming due in August this year and we intend to retire that. After that we’re going to -- everything is really looked at through the returns lens. And we'll think about where we could deploy capital with regards to growing the business, where we can generate those leading returns. And if we don't have opportunity to present themselves there, we'll look at returning it to shareholders, both considering share buyback and dividends.

Timna, I'm glad to be talking about that again.

This is a good point. Do you have a sense of your timing, can you just talk about is there an urgency there, are you content to wait and look at opportunities, is the M&A market particularly attractive versus organic opportunities?

I wouldn’t say it’s urgent, it’s something -- like Jeff said, we're excited to be having that be the dialogue, further dialogue internally and thinking about when and what the right timing is. And so, we think that's a great reflection of where we are from a cycle recovery perspective. And so, you’d also ask just about kind of where we'd like to see debt metrics and we talked about this before. But mid-30s debt to cap, and we want that -- our debt-to-EBITDA to be under 2.5 times.

Thank you. And our next question comes from Chase Mulvehill of Wolfe Research. Your line is now open.

Hey. Good morning, Jeff. Quick question for Chris. When we think about free cash flow conversion over the next few years, if I kind of look at 2018, it looks like your free cash flow conversion versus kind of net income, based on your CapEx guidance is going to be about 80%. As we think about going forward, is that a fair number when we think about free cash flow conversion?

Yes. What we said is that we expect to achieve a free cash flow conversion kind of in line or greater than peers. And so, that's what we're working towards. And that largely comes through capital discipline. Obviously if the market is ripping and we see lots of opportunities to put capital to work at great returns, we'll have to look at that. But, in a sustaining market environment, free cash flow conversion, in line or better than peers is what we're shooting for.

Okay.

And we had great results in 2017 on that. We were about 120% free cash flow conversion in 2017.

Okay, great. And then thinking about where the pressure pumping horsepower demand is today in U.S. onshore, maybe if you want to take a stab -- at that, and just kind of how undersupplied do you think the market is today?

Look, I think it's undersupplied. Clearly, we've estimated 1.5 million horsepower probably somewhere like that. And what continues to keep it there is the degradation on equipment and the intensity growing around completions. And that's meaningful and that's longer laterals, that's more stages; in some cases more sand, in some cases less; but in either case, simply more activity driving the demand. And then to that point, the flight to quality that we see towards our assets, our platform and approach to work, I’m very confident and excited about 2018.

And how much share have you been able to hold through the recovery? Have you been able to kind of maintain, kind of peak of share, have you given some of that back?

Look, we said all along, we reached sort of the highest share we’ve ever had as we worked through the downturn. And our intent had been to settle at a higher than our historical share through the recovery, and that’s what we’ve done.

And that concludes our question-and-answer session for today. I’d like to turn the conference back over to Jeff Miller for any closing remarks.

Thank you, Candice. Before we close up, I’d like to just reinforce a couple of key points. First, I’m excited about what I see for Halliburton in 2018. The commodity prices have improved and unconventional activity is strong. And finally, we expect to generate significant cash flows and industry-leading returns. So, I look forward talking to you next quarter. Candice, you can close out the call.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.