Ladies and gentlemen, thank you for standing by, and welcome to Halliburton's First Quarter 2022 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to David Coleman, Head of Investor Relations. Please go ahead, sir.

Good morning, and welcome to the Halliburton first quarter 2022 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, Chairman, President and CEO; and Lance Loeffler, 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 financial 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, 2021, recent current reports on Form 8-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our first quarter earnings release or in the Quarterly Results & Presentation section of our website. 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 time for others who may be in the queue. Now, I’ll turn the call over to Jeff.

Thank you, David, and good morning, everyone. I am pleased with Halliburton's first quarter results. Our performance demonstrates the resilience of our unique strategy in action and the importance of our competitive positioning, both in North America and international markets. Here are some highlights from the first quarter. International revenue grew 15% compared to the first quarter of 2021, with activity accelerating across all international markets. Strong growth in Latin America and the Middle East/Asia offset the winter weather impacts in Europe. In North America, revenue grew 37% year-on-year with the acceleration of both drilling and completions activity. Higher utilization in March and net pricing gains drove margin expansion despite weather and sand disruptions earlier in the quarter. Our Completion and Production division revenue grew 26% compared to the first quarter of 2021 on activity increases in North America, Africa and the Middle East, while operating income increased 17% despite transitory U.S. land/sand delivery disruptions. Our Drilling and Evaluation division grew revenue 22% year-on-year, while margins expanded 440 basis points and started the year at 15% for the first time since 2010. This exceptional performance was largely driven by the strength of our directional drilling and project management businesses. We added three new companies to Halliburton Labs, our clean energy accelerator. This brings the total number of program participants and alumni to 15 companies. Halliburton Labs allows us to actively participate in the future of clean energy value chain. Finally, we retired $600 million of our $1 billion of debt maturing in 2025 and nearly tripled our quarterly dividend to $0.12 per share. These actions strengthen our balance sheet and reflect our commitment to return cash to shareholders. Before we continue, I want to provide a few comments about the current situation in Ukraine and Russia. This is a tragedy…

Thank you, Jeff, and good morning, everyone. Let me begin with a summary of our first quarter results, compared to the first quarter of 2021. Total company revenue for the quarter was $4.3 billion, an increase of 24%. Adjusted operating income was $533 million, or a 44% increase compared to the operating income of $370 million in the first quarter of 2021. These results were primarily driven by increased activity across all regions and improved pricing in North America. In the first quarter, we recorded pre-tax charges of $64 million. Of these, impairments and other charges totaled $22 million, including $16 million of receivables related to the write-off of all of our assets in Ukraine. The remainder of the charges totaled $42 million and was related to the redemption premium and unamortized expenses associated with the early retirement of $600 million of our 2025 senior notes. Now let me discuss our division results in more detail. Starting with our Completion and Production division, revenue was $2.4 billion, an increase of 26%, while operating income was $296 million or an increase of 17%. These results were primarily driven by increased pressure pumping services and artificial lift activity in the Western Hemisphere, higher completion tool sales throughout the Western Hemisphere in the Middle East, increased cementing activity in Africa and Middle East Asia, and improved well intervention services in North America land and the Eastern Hemisphere. These improvements were partially offset by lower activity across multiple product service lines in Europe and lower completion tool sales throughout Asia. In our Drilling and Evaluation division, revenue was $1.9 billion, an increase of 22%, while operating income was $294 million or a 72% increase. These results were due to increased drilling related services globally; improved wireline activity in North America land, Latin America and…

Thanks, Lance. Let me summarize what we've talked about today. We believe that this accelerating multi-year upcycle is different and more sustainable than prior cycles due to operators' focus on short-cycle barrels. Halliburton's strategic priorities are clear and effective and drive outperformance. Our technology portfolio and market presence mean that we are poised for profitable growth in the international markets. In the tight North America market, we remain focused on maximizing value and improving returns. And finally, I expect Halliburton to continue to deliver profitable growth, strong free cash flow and industry-leading returns in this up cycle. And now, let's open it up for questions.

[Operator Instructions] Our first question comes from David Anderson with Barclays. Your line is open.

Hi. Good morning, Jeff.

Good morning, Dave.

Your sales force in the U.S. has been playing defense the past five or six years, returns of software, but now your customers are actually reaping record cash flows basically on the back of low service cost. And as you said, equipment is essentially sold out in the U.S., activity is ramping up, oil's at 100, fundamentals are pretty tight. I'm not sure if I've ever seen a better environment to push pricing. So I was wondering if you could talk about this process. What are you telling your sales force now in terms of pricing? And more importantly, what's the pushback from E&P? I understand the sense of sticker shock, but the situation is only going to get worse a year from today. I don't see capacity being built, E&P costs are only going in one direction. If you could kind of frame your -- frame the whole pricing debate for me, I'd appreciate that. Thank you.

Yes. Yes, I will do that. Look, I think the most important -- I mean, obviously, pushing price all of the time, so guidance to the sales force is literally -- this is the amount of equipment, we expect it to earn more. And the sold-out conditions make that a lot clearer, certainly, for our folks and I think for our customers as well. And I think the other key here is, though, it's a more iterative process and it continues to be iterative. By that, I mean, we've moved on price and we'll continue to move on prices. We work certainly this quarter, next quarter and through the year. And so, I expect to continue to move that direction with price. I think it is a bit of a sticker shock, because you're seeing inflation across the entire sector. So we've got inputs that are going up meaningfully. Our own costs are going up meaningfully, and we're outpacing those costs in terms of net pricing. And so, I would describe it, I think you're accurate. It's more around sticker shock. I described last quarter, we were moving around a little bit between customers as customers, sort of, felt around in the marketplace for what's out there, what's possible. And so, I think that, obviously, we plan to continue moving.

So, Jeff, I recognize it's early to talk about 2023. A lot has changed over the last 90 days, though, especially kind of, if you think about kind of global hydrocarbon movement. I was wondering, is it fair to say that your top line expectations for next year have materially increased, particularly around the international outlook that you're talking about ramping up? And kind of -- and part of that is 35% incremental margins are sort of the baseline, I guess, if we talk about double-digit growth, but could that actually be closer to 40% or even 45% on how you see pricing particularly on that -- based on what we saw in the mid-2000s? So it doesn't seem like much of a stretch.

Yes. Look, Dave, I'm really excited about the outlook. And what I don't want to do is get in the business of refining a two-year outlook every quarter. But clearly, every quarter trajectory changes. And I'm very excited about those changes. And I think everything we see, including what you described as energy security, sets up a busier North America, clearly and strong growth internationally. And what's key is we're seeing them both at the same time. And that's -- it's something we really haven't seen in a very long time and sets up very well for certainly us.

Thank you.

Our next question comes from James West with Evercore ISI. Your line is open.

Hey, good morning, Jeff. Good morning, Lance.

Hey, good morning, James.

Good morning, James.

So Jeff, you talked a lot about short-cycle barrels, which makes a ton of sense, given the situation the world's in now being short oil in a pretty significant way that, that would be the focus today. When do you think that, if it does, that the cycle turns into one of a more balanced mix of short-cycle barrels and some longer-cycle barrels, some of the more complex, maybe more offshore or just maybe bigger development-type projects?

Well, I think that what we see offshore generally today are tiebacks or development-type activity. But I think when I look further into the future, it's a combination of sort of ESG pressure is clearly one…

Right.

…capital returns, returns is another key element of that. And I don't think those are changing anytime soon. And so what I think we see is a marketplace that's going to have more optionality clearly for our clients. And in some respects, for us as well. I mean that's the approach we've taken sort of longer-term maximizing value in North America is a view that we are going to be where we need to be. But clearly, in places where we have optionality also, I think you see that in sort of CapEx spend. And I think that we've done -- everything I see, it just takes a long time to get those things underway and lots of money upfront, and I just don't really see over a longer period of time, like I don't know -- I want to give you a time, but a much longer period of time, could we see that creep back in? We probably could, but I don't see it in the viewfinder today.

Okay. Okay. That's fair enough. And then Jeff, we hear a lot about and we've been talking to a lot of the NOCs, particularly the ones in the Middle East and North Africa, who are reworking their budgets or have been over the last seven, eight weeks and using a little bit higher oil price estimation. And I'm curious what they're telling you and probably your competitors as well about how these budget increases will flow through? I mean these are, in some cases, fairly bureaucratic operators. And so their ability to change and to get capital into the field and get service companies lined up in rigs and frac spreads, et cetera, takes some time. So I know you're certainly more optimistic now than you were probably yesterday, a day before and six weeks ago, but are – do you think you see a lot of this in the back half, or are we really starting to talk about a 2023, 2024, 2025 story for a lot of these big NOCs?

Look, I think we're going to see building activity sooner than that. I think it builds throughout the balance of 2022 and then probably continues to get legs in 2023, likely beyond. I think the key is that $100 oil, everything is busy. And people want to be busy, but the question is, can they be busy? And what we've seen is really seven years of underinvestment around the entire world spending about half of what we used to spend. And that's not something that's overcome in a day or a year or – that just takes time to – to get momentum. And I talked there are clearly all of Middle East, not the same. Clearly, there are NOCs that take a very long view and will build into growing production over time. But that's not the case everywhere. Lot of activity for us, but I think – and we'll see that sooner. But I don't think that you see the real long cycle-type work. It's just going to take quite a bit of time.

All right. All right. Okay. That's very helpful. Thanks, Jeff.

Thank you.

Our next question comes from Chase Mulvehill with Bank of America. Your line is open.

Hey, good morning, everybody.

Good morning, Chase.

Hey, Chase.

Hey, Jeff and hey, Lance. So I guess I wanted to follow-up on the margin guidance on the C&P side. Obviously, pretty strong sequential increase, I think you said 350 to 400 bps of margin improvement on the C&P side. So Lance, I don't know if you could step back and kind of walk us through some of the moving pieces. Obviously, 1Q was a little bit softer than we all thought. But just kind of walk us through price, so maybe some costs coming out or things just to help us kind of get confidence in that big sequential increase in margins on the C&P side?

Yeah. And you're right, Chase. A lot of noise in Q1, we've discussed before sort of the air pocket that exists as we move across the calendar year with completion tool sales and the profitability that goes with that. And certainly, the headwinds that we faced with sand supply early in the first quarter. But I think the real underpinning of the guidance is what we're beginning to see now on pricing in North America, and it really beginning to take hold. I mean, as Jeff said, we've been very careful about the equipment we've told you were sold out. So it's not like we're adding incremental equipment. This is really a pricing story for North America as it begins to turn.

Okay. I guess, the follow-up is really on pricing. Obviously, pretty tight US market, you're really starting to gain momentum on the pricing side. And Lance, if we were to kind of squint really hard and look at leading-edge pricing, can we say that leading-edge pricing is starting to feel like its back to kind of 2018 levels, or are we kind of a long way from being able to kind of make that comparison just yet?

I think it's a little early, but I think that we're heading in that direction, and we'll get there, we'll eclipse that as we go throughout the course of the second and third quarter.

Yeah. I think what's important, though, Chase, is that it's not the marginal fleet at the front edge of the curve, it's really the entire business that needs to get the recovery. And I think that's what we're in the process of doing. So does the leading edge makes sense, yes. But the fact is, as I described in my comments, an incremental fleet is not really the decision point here, it's the recovery of the whole business in order to generate free cash flow.

And improved returns.

Yes.

Great. Makes sense. I’ll turn it back over.

Our next question comes from Neil Mehta with Goldman Sachs. Your line is open.

Good morning, team. Jeff, if I heard you right, you talked about North America growing 35% in terms of CapEx this year versus your previous estimate of 25%. Can you talk a little bit about what gives you confidence around that view? Is the composition of that more of the privates, or do you actually see it showing up in public E&Ps? And is that activity-driven, or is it inflation-driven? Any color around the margin because that's a material increase in your macro expectations.

Well, a lot of that inflation that we see. It's -- and obviously, there's been a lot of inflation if we just look at the cost of inputs separate from our own, we've seen inputs ranging and cost increases from 20% to 100%, depending on what the item is. And so that weighs on it. Rig counts up 45% if we were to stop today, frac crews are up 20% if we were to stop today and the cost of each of those are more. And so look, I think really what we're seeing is public companies will stick -- are sticking with activity outlook. It's not necessarily increasing activity. And then with privates, we continue to see more activity and they keep growing. And so I think that operators all have different strategies and are very, very sharp around this. And so I expect that they will manage their business the way they plan to manage it, but there's just no question that when I see inflation and activity and clearly privates, to make clear, the private growth is an important part of that outlook. We just -- my view is that we've moved up from where we were a quarter ago.

And Jeff, we clearly build in the rig count here and we're seeing an intention for to come into 2023 a little bit hotter from a production standpoint. But when we talk to producers, the constraint continues to be around labor and pressure pumping equipment. Do you see new capacity being added into the market by your competitors? And ultimately, will that be a constraint on the US production profile over the next couple of years?

Yes. I think it will be a constraint. I'm going to go back to my earlier remarks about a closed-loop system and terms of generating cash in order to build equipment and there’s a lot of equipment repair that needs to still happen or replacement in the marketplace. So I think that will be a constraint, labor and certainly equipment. And that's one of the reasons we take a very long view of fleet health, and we've got one of the healthiest fleets in the marketplace. But inside of our capital budget, we're always replacing aging equipment, and we're looking ahead today to 2023 and 2024 in terms of what that fleet composition needs to look like. So we're unique in that regard in terms of where we sit. But I do think that we don't -- I don't see capacity and I don't see meaningful capital to support any kind of build cycle at this point. Reality is this industry is still in recovery mode.

Thank you, guys.

Our next question comes from Scott Gruber with Citigroup. Your line is open.

Yes, good morning. I just want to come back to the C&P margin outlook, especially given what's happening in the marketplace here with your improvement in frac pricing. When I look at the margins and the incrementals, obviously a lot of noise in 1Q, which you've talked about, but when I look at margins embedded in your guide versus the second half of last year, that the incremental still look pretty modest. But going forward, obviously, a building completion tool backlog, frac prices improving, but obviously, pretty stout inflation coming through the system. How should we think about those factors impacting C&P incrementals in the second half? Can we see incrementals rise into the 40s, although inflation constrained those incrementals kind of in the 30s? How should we think about it?

Yes. Well, if we look at the Q2, I mean, the way you described it, everything we're doing is driving better margins in C&P, whether it's the operating leverage in the business, moving on price, equipment is tight. I think the Q2 guide is -- puts us in that sort of range. Yes, there's a lot of inflation on other inputs to the business that we are recovering, but even recovering the cost of those other inputs will have a bit of a dilutive impact on overall margins, but that doesn't change the recovery for us and the speed and the momentum of that recovery. And so I feel very good about where we're going and expect incrementals to be at the high end of what a range would be as we move through this process.

Got it. Got it. And one of the concerns we've heard just on the capturing the next round of pricing in frac is just around timing. Your pricing leverage is improving. But I guess the question is, when do you see the next round really hitting? Is that kind of in 2Q, 3Q, or do we have to wait until kind of late in the year in the next budget season to really see a -- the next big step-up? How quickly does the next round of pricing in frac [indiscernible]?

Yes. Yes, look -- crazy to get into the strategy for different customers and where we are. But obviously, this is an iterative process, meaning it's not something we wait until next year to do again. It's something that we are doing sort of in real time on a very regular basis. And so I expect -- we're in a $100 oil environment here. And this is part of the cost of delivering $100 oil. And so, a healthy recovering industry, we will continue to iterate on price as we move through the year, not planning for next year.

Got it. Understood. Thanks, Jeff.

Our next question comes from Ian Macpherson with Piper Sandler. Your line is open.

Good morning team. The situation in Russia has shifted the paradigm not only for crude, obviously, but also natural gas and coal, both of which land on the shoulders of natural gas everywhere else. So, we've seen that strip move radically recently. What do you think the customer response will be from US and international producers of natural gas with regard to activity response to what might be a structural higher strip just like crude that maybe hasn't shown up yet in the fundamentals of your business through April?

Yes. Look, I think, Ian, that has to strengthen certainly in terms of activity, and I expect we'll see that in the important gas-producing countries internationally, we will see more of that activity and even likely in the US. But the fact is, there still are some important constraints in place around pipeline capacity and whatnot that is serving to keep some of that market constrained today. But look, our business in the gas basins is improving and is busy and really not too dissimilar from kind of the demand response or the activity response that we see from oil.

Okay. And then, Jeff, just going back to the outlook on C&P margins. You -- obviously, there was significant weather and sand bottlenecks that distorted Q1 and you have a healthy recovery guided for Q2. But does your margin guidance for Q2 for C&P embed an assumption that the sand problem is sort of contained fully now, or do you -- or is that an area for remaining incremental recovery of margins from enduring bottleneck on sand as you've guided Q2 later in the year?

No, I think the sand is largely behind us. That was a good example of underinvestment in supply chain. And as it was turned back on, it had a lot of maintenance, lack of maintenance thereof, and we even participated with some of our vendors to help them get things back online and I believe that's largely behind us. Look, I think the important point here is this trend is moving up. We're going to see all sorts of things, but our guide accounts for sort of all of the things that we see. And I think that we are just in this place where we're going to continue seeing improvement sort of over whatever the labor bottlenecks happen to be, those are going to all be overcome consistently as we move through year and really beyond. I mean I think that we'll continue to power through all of that and continue to see solid incremental growth at margins.

Super. Thanks Jeff.

Yes, thank you.

Our next question comes from Connor Lynagh with Morgan Stanley. Your line is open.

Yes. Thank you. I know it's a bit early to say precisely, but just returning to the topic of international pricing. Do you see meaningful constraints in either your available equipment in select markets or your availability of labor, or is that more of a US issue at this point?

Look, I think a lot of the same tightness discussion that we talk about in the US is similar internationally. It comes in smaller pockets generally because it's 70 countries as opposed to one. But we're seeing more tightness in tools, clearly in people, and I think that's what's driving extensions today. I described the increase in the number of extensions we are seeing at higher prices. That's a great sign. But that's really predicated on tightening markets and the importance of having services available. Equipment is getting tighter. New work is pricing better. It moves more slowly than the US, so it may be a little less pronounced, but I expect that, that continues to improve. The large tenders remain competitive, but the fact is they're soaking up noticeable equipment. And in fact, some of that tightness in the marketplace is creating opportunity for Halliburton. There are a number of situations where, because of our supply chain and access to raw materials and products, we were able to supply when others could not. And so, I think that's a real -- that's the evidence that, that market is getting tighter. When we get a third call from a customer says, hey, do you have anything' and we're able to supply it, that's an indicator that the market is getting tighter.

Got it. That's helpful color. Just on the supply chain side of things, there's obviously been a lot changing in the world over the last month or two here. Have you had any sort of hot spots that you're monitoring? Are there any areas that, we should think about being -- something we should be watching as you ramp activity through the back half of the year here?

No, I don't think so. I mean I think what we're going to just see is the lengthening of delivery times. Things take longer to deliver, and therefore, planning matters more than ever. Obviously planning on our part, but also planning on the parts of our customers. And again, it is creating opportunity for us. And I think along the way, the key here is, we can't and won't subsidize operators in this process. So, we've been very transparent in terms of the cost to acquire things, the timing to acquire things. And I think that, again, our supply chain organization is very sophisticated and it outperforms. And so, I put Halliburton right at the top of that when it comes to solving those kinds of shortages, bottlenecks, whatever it may be.

Got it. Thank you very much.

Thank you.

Our next question comes from Stephen Gengaro with Stifel. Your line is open.

Thanks. Good morning, gentlemen.

Good morning, Stephen.

Two things for me. Just to start with, with the world evolving and you mentioned kind of the pull on short-cycle barrels, how do you think about CapEx? How do you think about investing in assets which have 5-year-plus lives in an environment where things have changed so dramatically?

Well, we look at that returns on that equipment inside the time that we know it will work. And so, it much of that at all. Anything that we're doing, we've got line of sight to not only the initial project, but its full cycle return, and expect that to get returned in the life of that contract. I'd use eFleets as an example of that, where our view is, they have to make a return on capital and a return of capital inside of the time it goes -- its initial contract. And we view a lot of things that way. And so, I think just as operators sort of retain flexibility – budget flexibility around what they choose to do, we're doing the same. And that's what allows us really in my view, to confidently drive profitable growth internationally, which D&E margins are an example of that, and then also maximize value in North America, which is our approach to North America is demonstrating that also. And so I really like our strategy very much, and I think it's very consistent with the kind of market that we see unfolding.

Thanks. And I guess the follow-up, just when you think about -- and you mentioned the concentration of frac equipment in the hands of just a few operators now and you've seen consolidation. Have you seen behavioral change from -- in general, just from all the players in the market? Do you think it's just a function of the market being sold out? Do you think other -- your competitors are truly acting better when it comes to pricing?

Look, I can't comment there. I mean, what I see is an industry broadly that has underperformed for a long time. And I know in our own case, for Halliburton, in order to reinvest in even replacement equipment, we need fundamentals that are better and returns that are higher in order to generate the cash back to my point around maximizing value in North America. We're only going to do that if the investment is produced by the equipment that is working in the marketplace. And so independent of what others are doing, that's what we are doing. And when I look across the marketplace, I see a whole industry that has largely suffered the same thing. And so that's just pure economics at work there.

Great. Thank you.

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

Yeah. Thank you, Michelle. Look, before we end the call, let me just close with these comments. I am confident in my outlook on the strength of this market upcycle. And I expect Halliburton will deliver profitable growth, strong free cash flow and industry-leading returns as this upcycle accelerates. The pivot to short-cycle barrels only confirms this upcycle staying power. Look forward to speaking with you next quarter. Michelle, let's close out the call.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining, and have a wonderful day.