Halliburton Co

DUS:HAL

Hello, and thank you for joining the Halliburton Third Quarter 2026 Conference Call. We will make the recording of today's webcast available for 7 days on Halliburton's website after this call. Joining me today are Jeff Miller, Chairman, President, and CEO; Shannon Slocum, Executive Vice President and COO; and Eric Carre, Executive Vice President and CFO.

Some of today's comments may include forward-looking statements that reflect 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, 2025, quarterly reports on Form 10-Q, 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, except as required by law. Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our third quarter earnings release and in the quarterly results and presentation section of our website.

Now, I'll turn the call over to Jeff.

Thank you, David, and good morning, everyone. I am pleased with Halliburton's third quarter results. Our revenue exceeded our expectations, and we took important steps towards improving our margins. Here are a few highlights from the third quarter. We delivered total company revenue of $5.7 billion and adjusted operating margin of 12.8%. International revenue was $3.5 billion, an increase of 9% year-over-year. North America revenue was $2.2 billion, a decrease of 9% year-over-year. During the third quarter, we repurchased approximately $250 million of our common stock.

Before Shannon covers our operations, let me share my thoughts on the market, an early view of the year ahead and Halliburton's business today. Let's start with the market. We are another 3 months into one of the largest energy disruptions in history. Commodity prices remain elevated, and geopolitical uncertainty is high. The world has lost an enormous amount of oil supply, and the shortfall continues to grow. Current estimates are that nearly 3 billion barrels of supply have been lost since the conflict began and that about 1 billion barrels have been drawn from global inventories. I expect the work to restore production, rebuild inventories, and strengthen energy security will drive multiyear demand growth for oilfield services.

Turning to our outlook for the business, our early view of 2027 for Halliburton is revenue growth in the mid-single digits and operating income margins to expand about 200 basis points, or to about 15%. Let me share with you what underpins my view and how Halliburton's business today makes me confident we will achieve those results. First, as a result of years of deliberate strategy and investment, our international business, in fact, all of our businesses outside of North America hydraulic fracturing, are the strongest they have been in many years. These businesses are growing, profitable, and winning on technology and our collaborative value proposition. My confidence is rooted in their strong execution, and I am excited about the pipeline of opportunities in 2027 and beyond.

Second, I want to put North America hydraulic fracturing in the proper context for 2027. I could tell you anecdotes about pricing adjustments and list the reasons I think the North America frac market should improve. But what's important to understand is that Halliburton's path to growth and improved profitability that I just described does not require any recovery in North America frac. To us, it is purely upside. Shannon is going to take you through the operational details of this quarter, but I will leave you with this. I see growing multiyear demand for oilfield services. I see Halliburton delivering growth and margin improvement, and I see any North America frac business recovery as upside.

With that, let me turn the call over to Shannon.

Thanks, Jeff. Let me start with International. Our third quarter revenue was $3.5 billion, up 3% sequentially. Much of the strength this quarter came from growth in our D&E division, which significantly outperformed our expectations on the top line and improved operating income margins 150 basis points sequentially. Let's get into the details. I'll start with the Middle East. The conflict, clearly, creates near-term uncertainty, but I am pleased with our third quarter performance. Middle East results improved sequentially despite inflationary headwinds, which we expect to persist for some time. In the fourth quarter, I expect Middle East revenue to grow both sequentially and year-over-year. Of the many things driving those expectations, I'll highlight 2: a full quarter of Jafurah completions activity and an expanded share across integrated and discrete services in Saudi Arabia.

Outside of the Middle East, Halliburton's international business is winning work, and we are delivering on our growth engines in a healthy market. We expect 2026 year-over-year growth in these regions to be about 12%. Let me say a word on why we win. Our value proposition is simple, but powerful. We collaborate with our customers, and we engineer solutions that maximize the value of their assets. We differentiate on technology, and we deliver on execution. When customers award work on technical merit and total cost of ownership, Halliburton wins.

I'll give you 2 examples from this quarter: the Bumerangue appraisal program for BP in Brazil and the Cronos ultra-deepwater gas development for Eni in Cyprus. In each case, customers chose Halliburton for our technology in drilling, automation, formation evaluation, fluids, cementing, and completions and importantly, our ability to collaborate with our customers early in the development cycle.

Next, let me give you a brief update on our growth engines: production services, drilling, unconventionals, and artificial lift. Each is a market we believe will grow faster than the industry as a whole. We are tracking to our target of $3 billion of added annual revenue by 2028. This is a global target, but we see concrete evidence of it materializing as awards move to startup. In production services, we expect our North Sea frac vessel to begin operations at year-end. And in unconventionals, we expect our first ZEUS fleet in Argentina to start up in the fourth quarter as planned.

I want to take a moment to highlight artificial lift. In Argentina, we won a multiyear ESP rental contract with a major operator, our largest award of the quarter. And with another customer, we delivered our first unconventional installation. This quarter, we also made our first installations in UAE and offshore Congo, and we received our first order for an offshore ESP in Brazil. I'm excited about the accelerating growth of our international footprint.

One more market I want to mention is Venezuela, where we are open for business. Our management team is in place. Our facilities are open, key equipment has moved, and we generated revenue in Q3 in multiple product lines. Venezuela is a market we know well. And based on customer conversations, I expect to see solid growth moving forward.

To conclude on international, our value proposition is winning. Our growth engines are delivering, and I am excited about the year ahead. Turning to North America, third quarter revenue was $2.2 billion, down 5% sequentially. The frac market did not recover as strongly as anticipated, and our results reflect this. We run North America frac for returns, not share. And in the third quarter, we moved several crews to new customers at better pricing. These moves created more downtime than we anticipated and weighed on our performance in the region and our C&P division.

In North America land, our Sperry Drilling services, drill bits, and drilling fluids businesses grew 23% year-over-year, well ahead of the rig count.

Let me tell you what that looks like in each business. In drilling services, the trend is clear: longer laterals, more complex wells, and more rotary steerable drilling. iCruise delivers on all 3, and we see strong demand in all sales channels. In drilling fluids, Baroid also wins in long laterals, where wellbore stability can decide how fast the well gets drilled. We see growing adoption of our high-performance fluid systems. I expect to see this growth continue as wells get more complex, and customers demand greater efficiency.

In drill bits, our performance-driven technology is paying off. One example of this is HyperSteer, a bit engineered to run with iCruise and deliver maximum steerability and speed. Our North America drill bit revenue per rig is up double digits from the first quarter. Bottom line, North America production requires progressively more complex wells, and more complex wells means more growth for Halliburton.

Let me close on North America with how I think about this business as a whole. It generates solid cash flow. And over the last several years, we have made deliberate choices to reduce our exposure to commoditized activity and differentiate through technology. Today, both our drilling and completion businesses are more differentiated than ever before.

Before I turn the call over, I want to thank our employees in more than 70 countries for their focus on our customers' safety and execution.

With that, I will turn the call over to Eric to provide more details on our financial results.

Thank you, Shannon, and good morning. Our Q3 adjusted net income per diluted share was $0.60. Q3 revenue was $5.7 billion, adjusted operating income was $731 million, and adjusted operating income margin was 12.8%. Let me share what we saw in Q3 relative to our expectations. First, in our C&P division, revenue and operating margins were both below our expectations. This was primarily due to lower-than-expected activity in hydraulic fracturing in North America land and Argentina and a slower startup of a new contract in Saudi Arabia.

Turning to D&E. We delivered better-than-expected revenue and operating margins, led by U.S. land, Middle East and Latin America. As expected, we saw a more favorable revenue mix during Q3 and higher incremental margins, resulting in stronger overall margins than anticipated. Turning to other financial items in the quarter. Consistent with our expectations, free cash flow in Q3 was down from Q2 level, but we expect sequentially higher free cash flow in Q4. Capital expenditures for Q3 were $266 million. For the full year 2026, we expect capital expenditures to be about $1.1 billion.

Moving on to our forward-looking expectations. Starting with an early view of 2027. We expect Halliburton to deliver revenue growth in the mid-single digits. This assumes a flat North America, Middle East activity in line with the second half of 2026 and steady growth in other regions. We expect operating income margins to expand about 200 basis points or to about 15%, driven by margins firming up in our core business, the start-up of new work, our cost reduction program and the ramp-down of S/4.

On this last point, I am pleased to announce that we are now live on S/4, completing a major global transformation. I expect this is the beginning of further simplifying our business processes, adopting AI at scale in our back-office functions and driving further cost reductions. I want to thank the teams around the world who made this possible. Turning to Q4. We expect total company revenue to remain approximately flat to Q3, around $5.7 billion and operating income margin to improve about 70 basis points. As a result, we expect Q4 earnings per share to be approximately $0.62 to $0.64.

Let me provide some color on the guidance. In our C&P division, we expect Q4 revenue to increase 3% to 5% and operating margins to improve 75 to 125 basis points. The main drivers are stronger performance in Latin America and the Middle East, higher seasonal completion tool sales and steady frac activity in North America land. In our D&E division, after a strong Q3, we expect Q4 revenue to be 3% to 5% lower and operating margins to be flat to up 50 basis points. We expect margin improvement across several product lines and a more favorable product mix.

I will now turn the call back to Jeff.

Thanks, Eric. Here are the important takeaways from today's call. Halliburton delivered a solid third quarter. Revenue exceeded expectations, and we took important steps towards improving our margins. Based on our early view of 2027, we expect mid-single-digit top-line growth and operating margins of about 15%. I am confident we will deliver revenue growth, margin expansion and leading returns for our shareholders. Let's open it up for questions.

David, it's Eric. Let me kind of provide some high-level view on the margin improvement first, and then I'll hand it over to Shannon to discuss the Middle East part of your question. So again, important to understand that the view on 2027 is an early view. It is based on 2 major assumptions: 1, which is our business in North America is flat and our business in the Middle East is flat to H2 2026. So if we walk through the numbers from a very, very high-level perspective, so we should finish 2026 at about $22.5 billion.

The growth we indicated for '27 means about $1 billion and change additional revenue, 200 basis points in margin means about $500 million to $600 million in operating profit. So about half of it is going to come from cost savings, operating cost savings, structural cost savings and the ramp down of the SAP S/4 program. So what remains is basically incremental margins on the additional revenue of about 20% to 30% range. So we think that's a very reasonable assumption. So that's at this stage, how we get to the 200 basis point improvement in margins.

Yes, Dave, what we see in Middle East, I'll start with there, and then I'll move to the unconventional question, is that region has been incredibly resilient. It's, obviously, highly fluid right now. But we see a good market moving forward. As Eric said, H2 -- flat to H2 next year. But if you look at really the things that we have won over the last year or so restarting in Jafurah unconventionals, the reentry work that we've won, integrated offshore work, our Iraq, we've seen Iraq starting to get busier, and we won some work there, as you know, with IFMS and also the expansion of artificial lift throughout the region, both Saudi, Kuwait, Oman and Iraq.

And all of that work, we see as accretive to our business. So we're really pleased with the direction of travel for our business and also believe that's an important market to the operators there, but also important market to the world. So we see that staying busy throughout next year. And as it relates to just unconventional as far as next year, we're really excited the direction we're going. We're now operating in over 6 countries around the world, plus, actually, Argentina, Algeria, UAE, Kuwait, Australia and Saudi and adding a few more.

But I think what's important is the work we're winning in unconventionals. It's not about the horsepower. It's about the technology and some deliberate decisions we made in those investments, and that's part of the reason you see that growth in unconventionals for us.

Yes, Dave. I'd say interesting but exciting. We believe Latin America will lead the charge for growth for us. Certainly, Argentina with the unconventional growth we've seen. As I mentioned in prepared remarks, Venezuela we're open for business, bases are open. We'll be delivering a dozen-plus ESPs to a major customer in Venezuela. Mexico, probably not an H1 recovery. It will stay fairly flat, but opportunities in H2. But I don't want to forget about Suriname in this conversation. We have won some significant work between TotalEnergies and PETRONAS in an integrated way. But I think if I look at Latin America, a lot of the work they're winning is really centered around our value proposition. It's how we engage with our customers and also their confidence in our ability to execute.

Look, I wanted to help you see what I see. That is the primary driver here. I don't like where margins are today. And we've made specific choices around cost structure, and I believe I'm confident that the direction of travel for margins is up. And wanted to make sure that I shared that with you sooner rather than later and also make clear that this outlook, this plan does not depend on a North America frac recovery. From a confidence perspective, look, Halliburton's international depth is meaningful.

And you heard Shannon allude to a lot of it, and you've seen the growth. The adoption of technology that we've worked on for a number of years is meaningful. We are seeing solid, steady drumbeat of technology adoption around the world. We've got confidence in the cost structure in terms of actions we've taken and also SAP being implemented. We got a lot of confidence in our core business and the kind of technology that's being adopted. And then finally, it's the pipeline of new work.

And we see it. It's moving from contract award to startup and into execution, that's happening. And I suppose, finally, the energy security is a real thing. And I know we're heading into an up cycle. And so that all gives me a lot of confidence around 2027. And as I said, I wanted to make sure I shared that with you sooner rather than later.

Yes, Shannon here. Yes, we see roughly 40 rigs being added in North America. So we have seen an uptick, as I've mentioned in the prepared remarks around Sperry bits and mud and the 23% growth we've seen just in Q3 alone. And we have seen privates adding and increasing their activity on the unconventional frac side of things. And our customers right now are in the middle of their budget cycle, but we are seeing some really good anecdotes that are -- that's playing out right here in front of us.

For example, we just had a big customer go in tender and only 1 service company showed up. We had another customer give us -- called us back and extended our e-fleet with price and then added another fleet on top of that. And we had several increases of prices throughout the quarter. So we're seeing those indicators, and we do know it is a very tight market, and there's not a whole lot of capacity out there. And so when we think about 2027, again, early days as far as looking at '27, but we see there's a real opportunity for growth in frac in North America next year.

Yes. Steve, on Q3, there was white space that we saw, and that was a good indicator. That white space was not dead time. It was us, actually, making deliberate choices to move crews around at a higher price. That's first. We are seeing Q4, we'll have some level of seasonality, but we're seeing that tight as well as far as white space. I believe the bigger customers, the bigger operators, we've, actually, here over the last week, seen indications of some of them going and looking at their frac schedule next year and, actually, have gotten phone calls. So all it takes is, really, 1 or 2 of these guys to put together a sizable program, and that changes things for Halliburton and will benefit in a big way.

Yes. There is certainly an increased cost with just logistics and getting materials to location with everything going on within the Strait. We have built all of that cost assumptions into 2027, assuming that will continue. I see the upside, really, in -- if you look at H2, it's times 2, really, that's up year-over-year. So we see growth there. But more importantly, the growth we see is from our core business, some of the awards that I mentioned.

Yes. So if I -- if we start with the cost reduction, which I say was about half of the improvement in margin in '27. So some of it comes from the cost rightsizing exercise we did in Q3, which you can look at being partially operational costs and partially structural costs. So the structural costs will remain until we decide otherwise. Operational costs sometimes tend to address imbalances in terms of product lines or geographic revenue growth mix. So these might come back up over time.

But we estimate overall that the cost reduction will be between $100 million and $150 million for next year. In terms of SAP, we've been spending about a little bit over $150 million a year. It will not go away in 1 go because we have to maintain some level of support as we transition to the new system and make sure everything works fine. But overall, the savings are estimated to be anywhere in between $120 million and $150 million. So give or take, will be around $250 million, $300 million coming from cost savings.

And the rest of it is, as I mentioned earlier, very reasonable assumptions on incremental margins from our core business. So yes, there are inflationary pressures. Some of them are already built in our Q3 numbers and our Q4 numbers. So we don't necessarily expect to have a lot more inflation from there. But offsetting that also, we are not assuming meaningful pricing increase, and we are seeing pricing firm up. So all in, we believe that our view of 2027 is a very balanced view with what we know today.

Yes, Shannon here. Yes. As I said, we are open for business. Team is in place, facilities open and equipment has moved. And we're getting multiple inbounds, and you've probably read all the reports that I have, a lot of major operators, Eni, Total, Chevron, Repsol, all looking at -- have either entered or will enter. The work that we started with has been primarily interventions as we expected. But just in the quarter here, we'll have 12 ESPs being delivered. And as far as size, before we left Venezuela, it was greater than a $0.5 billion business. We see that tracking to being a sizable country for us in the future. That won't happen overnight, but we do like our start to the year and it's trending in that direction.

Look, we've taken a view that we've got great line of sight to what we know is resilient, and that's how we think about 2027. But if things were to resolve immediately, somehow dare to dream would be my comment. I mean, I think we would see solid growth. I don't know how to even forecast that under the conditions we're under today other than what we have line of sight to. But obviously, a good business where we've done a lot of really good work. We've won some important contracts. And I think that if that were to somehow go away, the core business, sort of, the ongoing core business would build up pretty quickly.

Yes. What we have seen, really starting in late Q2, is a steady progression of conversations on starting at the privates on more activity. And being opportunistic off, really, where the strip was at that time and some operators that have hedges and saying, I can create some value here. The sense that we see -- what we see right now is more foundational, kind of, contracts being looked at and believing that commodity pricing is sticky. And that is driving another level.

And I mentioned those anecdotes that we've been seeing, and those are real. And we've seen them, kind of, a steady drumbeat of more of those, and that right there alone has, really, created some tightness. And like I said, we're the largest in North America, and we're assuming that, that's flat for 2027, but we're, really, excited about the conversations we're having.

Yes. Let me just clarify or just add to that a little bit, just to say that as we described '27, that's an assumption that we have made. That is not our view for North America. We're, actually, quite excited about North America. We run a great frac business. But we do run it differently because our return expectations are different, maybe, than what the markets are. And so we run it for absolute returns and we raise price or we lose share. As Shannon said, we are early in the process, but the anecdotes and the activity dialogue absolutely points in the right direction for recovery.

Yes, the growth engines, first, they are growing, and we have a lot of visibility to those on track and actually ahead of schedule as far as our target. You start with drilling, really love our business. We mentioned 2 pretty significant awards here in the quarter, both in Brazil and East Med. Those are good examples of drilling moving in the right direction. You look at unconventionals, I mentioned a dozen-plus countries around the world. We've, just within the last 2 months, added 2 spreads, 1 in Argentina and now have Jafurah up and running and have a good runway of over 30,000 stages that will need to be fracked in-Kingdom next year.

Production services, the stim vessel starts up at the end of this quarter here. And then lift what a fantastic story that's been for Halliburton going from a single country when we acquired it. Now, we're in 21 countries and added 2 countries just in the last year. So all of those things are good baselines to the growth and the target I mentioned and they're multiyear. But I think what's important in this whole conversation, these have been deliberate choices we've made on strategy and choices we made on technology investment that is paying off.

Yes. Derek, the recent over the last couple of weeks, yes, it's been fluid. There has been some disruptions. What I'd say that the events you've read about have not had a real material impact on operations. We see the rig count holding steady both offshore. You mentioned Saudi. There's a little bit of a dip in rig count in the unconventionables. That's not related to the crisis. We see those building back and see a real runway of activity moving forward. It's, obviously, very fluid. We keep a real close eye on that. But right now, like I said, the last couple of weeks have not had any impact on operations.

That project, IFMS project, that is a multiyear project. It's a bit of a wind up for a project of that size, but it is real significant work. The start of that project will begin sometime probably H1 of next year, and it will start with more of subsurface Landmark studies, those sort of things. This is a full-field development. So it's -- think of us as going in there and studying the field, understanding where to drill, where to put the pads and all the infrastructure around it. It's a 5- to 8-year project. So it will build over time.

And as far as Iraq, it has been a very challenged market for us. And we see that win and also some activity that's coming that is going to be impactful for us structurally and help improve that market. The wins you've seen and the work we're going to be doing is not only good for Iraq, but it's good for Halliburton. So just a little bit of a wind up on the IFMS work, but excited about it.

Yes. We really like our position offshore. Just over the -- just year-to-date, we've won about close to $4 billion of work, and we believe all of that is accretive -- the acquisition that we made of Sekal has been additive to that automation that you mentioned. And you look at the offshore wins we've had, I mentioned the Suriname work with TotalEnergies and Block 52 with PETRONAS, the East Med work. We're going to see robust activity in Norway with $10 billion of investments going in exploration and development, and that's a big market for us.

So that automation and some of the acquisitions and really, the deliberate focus on technology has helped us pull through a lot of these offshore wins I mentioned. So really love our position globally with offshore.

I would say pricing has continued to get better. It's been -- it's going to be accretive. We see a strong pipeline. This year, we've won roughly about $14 billion of work year-to-date. And our view is this is nobody has really overbuilt in this market, so it's tight. And what -- that tightness is, really, has us in a place where we're making deliberate choices of where we go. And we had us -- just here in the last month, we had Sperry tools that were 3 different customers need them, we had to make a choice of where to go.

So I think the general macro outlook for us, we expect more tightening. With tightening, we think that creates an opportunity for more price. So yes, we see that as being accretive.

Yes, Scott, it's Eric. So look, in terms of free cash flow, we were a little below what we were expecting in Q3. Some of it was due to collections that were a bit lower that has started to fix itself this month and some headwinds in inventory related to S/4 related to the buildup of inventory for a lot of the projects that Shannon mentioned as well as some concerns around Middle East logistics at large. If we look at Q4 and the overall year, so for Q4, we think cash flow from operations will be about $1 billion.

If you take out CapEx net of sales of about $300 million, so that lands you at about $1.6 billion of free cash flow for the year. As we look at 2027, we believe that goes up with the improved profits generated in the business, we think as well that free cash flow margins will improve in 2027.

Yes. The Mexico business, we've continued to see it improve. I think the macro environment we're seeing into 2027 should be supporting even further activity. It's probably, as I said, more of an H2 event, but what has driven, really, the quarter has been software sales. That, really, is what's been the impact there.

Look, politics change all the time. I'm quite confident in our business under any political outcome. So that's not factored into our outlook. I think that macroeconomics and the requirement for energy has never been more acute than it is right now. And I think that a lot of quality of life is built around the availability and affordability of oil and gas, which sets up this industry, oilfield services, for a really strong few years.

Yes. I would say I heard North America and Middle East there, I believe. The Middle East business is contracted. We have real good line of visibility to that. In North America, I'd say, hey, everything -- our frac spreads are all working and busy. And again, we're not making any -- we believe that will be modeling right now is just flat for us in 2027. But yes, really North America, we think, is going to be higher than what we've talked about.

Your question around '27? Or, is it around Q4?

Total year. Total year to total year.

Yes. Thank you, Howard. And before we wrap up today's call, let me just close with this. I see growing multiyear demand for oilfield services, and I am confident that in 2027, Halliburton will deliver revenue growth, margin expansion and leading returns for shareholders. I look forward to speaking with you next quarter. Let's close out the call.