Ladies and gentlemen, thank you for standing by and welcome to Halliburton's Third Quarter 2021 Earnings Call. Please be advised that today's conference is being recorded. I would now like to turn the conference over to David Coleman, Head of Investor Relations. Please go ahead, sir.

Good morning. And welcome to Halliburton's third quarter 2021 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 results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31st, 2020, Form 10-Q for the quarter ended June 30, 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 that exclude the impact of special items. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our third quarter earnings release and can be found in the quarterly results and 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. Last quarter, we discussed a longer view of a recovering market and our confidence in a multiyear up-cycle. I am pleased with the steady march of activity and Halliburton's performance in the third quarter internationally and in North America, which reinforces our enthusiasm today and for what we expect in 2022 and beyond. Our results demonstrate the effectiveness of both our strategy and our execution as the market recovery accelerates. Here are some highlights. Total Company revenue increased 4% sequentially with top-line improvements across all regions. While adjusted operating income grew 6% with solid margin performance in both divisions. Our Completion and Production division revenue grew 4%, driven by increased global activity. Operating margin was essentially flat in the third quarter, as we made operational choices to prepare for higher demand for our services in 2022. Our Drilling and Evaluation division revenue grew 4% with increased activity across multiple regions. Operating margin of 11% was about flat sequentially. North America revenue increased 3% as growth in U.S. land was partially offset by a decline in our Gulf of Mexico business due to Hurricane Ida. International revenue grew 5% sequentially, in line with the international rig count growth. Our year-to-date free cash flow generation of almost $900 million puts us solidly on track to deliver our full-year free cash flow objective. Finally, we retired $500 million of our long-term debt and ended the quarter with $2.6 billion of cash on hand. As this upcycle unfolds in both the International and North America markets, Halliburton is executing on our strategy to deliver profitable growth and generate industry-leading returns. In the international markets, third-quarter activity momentum continued, and I believe it will accelerate into year-end and support mid-teen second-half revenue growth compared to the second half of last year. This expected outcome is better than we anticipated a quarter ago. In the third quarter, we started long-term projects across all regions despite the COVID-19 interruptions. While mobility restrictions and daily precautions remain in place, business activity around the world has adjusted and continues to improve. In the Middle East, countries relaxed border restrictions and OPEC members prepared for activity increases. We started to work on several rigs offshore UAE, mobilized a work-over project in Bahrain, and completed multiple ESP installations on our Artificial Lift contract in Kuwait. We expect the Middle East to exit the year with solid activity momentum. In Asia-Pacific, we launched operations on an integrated project offshore Malaysia with full implementation of Halliburton's Digital Well construction capabilities. We also ramped up for an increase in our Indonesia drilling operations where the local NOC plans to boost production from its assets. In Europe, Africa, and CIS region, the start of operations on a 23-well offshore integrated development campaign for Woodside in Senegal marked a new country entry for Halliburton. In Russia, we're mobilizing for a multiyear IOC-operated project on Sakhalin Island. In the UK sector of the North Sea, work continues on several new development drilling and workover projects for local independent operators. Finally, Latin America delivered its best quarterly performance since 2015. We spotted the first well on a three-year integrated project in Brazil, deployed our new drilling technologies on multiple wells in Argentina, and prepared to mobilize for new work in Ecuador and Colombia. In addition to contract startups, our pipeline of new tenders continues to grow. While large Middle East tenders and Latin America projects received most of the headlines, customers in Africa, Russia, and Southeast Asia, among others, are also issuing tenders for new work. All of this points to increasing international customer urgency and demand for our services. Let me describe what I'm seeing that gives me this conviction. Global supply and demand balance continues to tighten, resulting in a strong commodity price environment. In response, asset owners are eager to reverse baseline production declines caused by multiple years of under-investment. We expect that NOCs and other operators with short cycle production opportunities will commit additional capital and gain share to meet future oil demand. Additionally, new fields are smaller and more complex. More customers are working harder to produce more barrels. Finally, as mature assets change hands, new owners move quickly to revitalize the assets they acquire and unlock remaining reserves. They require service partners who can deliver proven technology and decades of experience. All of these things have one thing in common. They require higher service intensity, meaning more dollars spent on the wellbore rather than on infrastructure. As the international recovery accelerates, we remain committed to our clear strategic priority: deliver profitable growth. We have unique competitive advantages to deliver on this priority. We have the established footprint, geographic presence, and customer and supplier relationships to capitalize on growth. We have a strong presence in all major international markets. The substantial majority of our workforce is local and within the regions where we operate; our supply chain spend is primarily with local suppliers. We have proven capabilities to ramp up our services as customers enter new markets. We demonstrated this in Guyana, Suriname, and most recently, in Senegal. The Halliburton team mobilized personnel and built a multi-functional operational base to support Woodside as we embark together on a development campaign offshore Senegal. We also engineer innovative solutions, both digital and hardware, to meet the complex reservoir challenges faced by our international customers. For example, in well construction, this quarter we introduced the iStar comprehensive measurement platform. This next-generation intelligent platform provides multiple logging and drilling measurements that enable reservoir evaluation, faster drilling, and consistent well delivery. For multiple customers in the Middle East and North Sea, the iStar platform provides insight into the impact of drilling parameters on well work conditions, and optimizes the drilling process in real-time. In completions, we are the global leader in downhole completion solutions. As our customers increase their activity, our e-completions ecosystem integrates manufacturing digital twins and technology development processes to increase our speed to market for these long lead complex systems. In many regions, as customers drive for better performance in the face of increasing operational challenges, I expect adoption of integrated and bundled contracts will continue to grow. Halliburton has strong project management capabilities and a proven track record that delivers efficiencies and reduces the total customer cost of ownership. Our digital innovations reframe customer project economics through greater efficiencies and improved decision-making. For example, in the third quarter, we deployed our well construction 4.0 digital solution to deliver further operational efficiencies for our customers in the Middle East. Finally, our customers call on us for collaboration, from an IOC looking to reduce emissions on its operations in Mexico, to a European independent working to remotely monitor and control all of its global drilling operations. Halliburton's value proposition to collaborate and engineer solutions to maximize asset value for our customers is working for both our customers and Halliburton. Now, turning to North America, the bifurcation between public and private company activity continued in the third quarter. Public E&Ps remain committed to their spending plans for 2021 while private operators continue to take advantage of a strong commodity price environment. As expected, completions growth moderated in the third quarter as operators shifted their focus from completions to drilling activity. Just like in the international markets, customer urgency and demand for our services keep growing in North America. Drilled but uncompleted well counts reached the lowest levels since 2013 as operators depleted the surplus of ducks accumulated in 2020. We expect customers to drill and complete more new wells to offset steep base decline rates and deliver production into an anticipated attractive market next year. Completions equipment availability is tightening. Customers have responded by starting the 2022 tender process earlier in an attempt to lock in access to quality services for next year's programs. Private companies now operate about 60% of the U.S. land rig count. Current commodity prices provide a strong incentive for their activity to expand. Our market-leading position in North America is rooted in the groundbreaking technologies we put to work in this market. We are the only fully integrated service provider in North America, and this gives us a unique competitive advantage. We combine the full breadth of our technology disciplines, geo-sciences, physics, chemistry, material science, and mechanical, electrical, and software engineering to deliver innovative solutions at scale around the world, and uniquely in North America, to maximize production and minimize costs. Our smart fleet intelligent fracturing services transitioned from pilot to campaign mode. Several large operators today have smart fleets working on multi-pad completion programs. Smart fleets for the first time allow operators to measure treatment placement in real time, which among other things has demonstrated up to 30% improvement in cluster uniformity. In the third quarter, we introduced the IsoBond Cement System and pumped it for multiple customers in the DJ Basin and in the Marcellus shale. By removing liquid additives, this dry-blended cement provides significant operational efficiencies and lower capital requirements for land operations. Taking advantage of the increasing demand for our services requires strategic execution on many fronts, particularly in the current environment of stressed supply chains, tight labor, and inflationary pressures. Against that reality, I believe that Halliburton is best prepared to provide reliable execution for our customers. Our sophisticated supply chain organization translates Halliburton's size and scale into real savings for us and our customers. We are seeing that in action as our supply chain delivers what our customers require for their projects. The labor market is tight today. We've seen the situation before, and our human resources team knows how to navigate it. Over the last few years, we compressed our onboarding time, strengthened our national recruiting network, and used digital solutions to significantly reduce our field personnel requirements. Despite real challenges, we have the scale, speed, and systems to recruit talent nationally and quickly deploy it for our customers. In logistics, we have ready access to a fleet of drivers to make deliveries to the job site. We expanded our collaboration with Vorto, an artificial intelligence supply chain platform. Our early adoption of Vorto's platform that connects drivers, asset owners, and maintenance yards allows us to effectively manage trucking inflation and availability constraints. Now let me spend a few minutes on our activity and pricing outlook for 2022, first in the international markets and then in North America. Next year, we expect international activity momentum to accelerate, and international leading-edge pricing to move upward in pockets as a result of higher activity. This is what we're seeing today. Large tenders remain competitive, but we're already seeing modest price increases on discrete work in underserved markets. We see increasing customer demand for Halliburton's high-end technology and the recognition of its value. Finally, as a result of lower spending by service companies for more than half a decade, international markets face tightening equipment supply. To meet these demands, we are strategically reallocating assets to drive improved utilization and returns. Let me be clear. Halliburton prioritizes profitable growth internationally, and this will drive our capital allocation decisions to the best returning product lines, geographies, and contracts. In North America, we expect customer spending to increase around 20% next year, including solid net pricing gains. Many factors drive that spending and pricing, including customer urgency, equipment tightness, and the desire to align with a reliable and differentiated service provider like Halliburton. Last quarter, we highlighted the pricing traction that exists for low-emission equipment. Today, as we tender for 2022 work, we're seeing price increases for the rest of our fracturing fleet as well. Net pricing has also increased across different non-frac product service lines like drilling, cementing, drill bits, and artificial lift. To generate the highest returns as this market grows, we are taking steps to maximize the value of our North America business. Specifically, we are repositioning our fracturing fleets to customers in areas where we can maximize returns in 2022, securing longer-term, premium pricing contracts for our existing and planned electric fleets, and accelerating fleet maintenance and deployment of the next-generation fluid technology, which extends the life of our equipment. Halliburton has committed to North America, and I expect we will benefit more than others as activity and pricing momentum accelerates across the board. Next, let me turn to how we are executing on our strategic priority to advance a sustainable energy future. As we are witnessing now and saw in the third quarter, the world requires a greater supply of oil and gas. As an oilfield services company, we have the core competency to help our customers deliver this supply in the most efficient and technologically advanced ways possible. With our customers, we are bringing our technical expertise and over a century of industry experience to actively participate in the transition to a cleaner economy. One of the most meaningful contributions we can make today to this transition is to help our customers reduce emissions from their existing production base. Emissions reduction is a critical part of our technology development process, and our innovative low-carbon solutions are helping oil and gas operators reduce their carbon footprint. Halliburton's electric fracturing solution delivers results now for our customers. In the third quarter, Halliburton completed an all-electric pad operation on a multiyear contract with Chesapeake Energy in the Marcellus shale. We deployed our electric fracturing spread with electric blending, wireline, and ancillary equipment, and an advanced power-generation system from VoltaGrid. This high-performing solution reduced Chesapeake's emissions using over 25 megawatts of lower-carbon power generation from Chesapeake's local field gas. We are collaborating with an IOC in Mexico on their total carbon footprint reduction. Because we provide both well construction services and logistic services on this contract, we changed supply boat fueling mechanisms and optimized usage to achieve emissions reductions in the first year of operations. We are now using a similar contract structure to collaborate with this IOC on its other projects in Latin America. We are also advancing renewable energy solutions through Halliburton Labs, our clean energy accelerator. In the third quarter, we doubled our size by increasing the number of Halliburton Labs companies from four to eight. Welcoming Alumina Energy from California, Ionada from Ontario, and Parasanti and SurgePower Materials from Texas. We help these companies scale their exciting technologies, from innovative energy storage solutions to modular carbon capture systems. In September, Halliburton Labs hosted its third finalist pitch day, featuring nine early-stage companies, and an audience of several hundred entrepreneurs, investors, academics, and other professionals looking to engage with companies that advance cleaner, affordable energy. The Halliburton Labs participants are achieving results, and Roxol Bioenergy completed a $10 million series A round of financing, and Roxol's patented modular system uses locally sourced organic or plastic waste to generate clean on-site energy, even in the most remote and inaccessible locations. Other accelerator participants achieved important scaling milestones in the third quarter. With both current and expected demand increases, Halliburton remains committed to the priorities we set in 2020. We prioritize profitable growth and returns, remain focused on capital efficiency, and keep our overall capital investment in the range of 5% to 6% of revenue. I'm excited about the multiyear up-cycle we see in front of us. I believe our value proposition, technology differentiation, digital adoption, and capital efficiency will allow us to deliver profitable growth internationally and maximize value in North America. Halliburton will continue to execute our key strategic priorities to deliver industry-leading returns and strong free cash flow for our shareholders. Now, I'll turn the call over to Lance to provide more details on our third-quarter financial results.

Thank you, Jeff. And good morning, everyone. Let me begin with a summary of our third-quarter results compared to the second quarter of 2021. Total Company revenue for the quarter was $3.9 billion and adjusted operating income was $458 million, an increase of 4% and 6% respectively. During the third quarter, Halliburton closed the structured transaction for our North America real estate assets that I described earlier this year, which resulted in a $74 million gain. We also discontinued the proposed sale of our pipeline and process services business, leading to a depreciation catch-up related to these assets previously classified as assets held for sale. As a result, among these and other items, we recognize a $12 million pretax charge. Now, let me take a moment to discuss our division results in more detail. Starting with our Completion and Production division, revenue was $2.1 billion, an increase of 4% while operating income was $322 million or an increase of 2%. These results were driven by increased activity across multiple product service lines in the Western Hemisphere, higher cementing activity in the Middle East Asia region, as well as increased well intervention services in the Europe, Africa, CIS region. These improvements were partially offset by reduced completion tool sales in the eastern hemisphere, lower stimulation activity in the Middle East/Asia region, and accelerated maintenance expenses for our stimulation business in North America, which related to upgrading our fluid and technology in preparation for the anticipated market acceleration that Jeff described earlier. In our Drilling and Evaluation division, revenue was $1.7 billion, or an increase of 4%, while operating income was $186 million, or an increase of 6%. These results were due to improved drilling-related services internationally and in North America land, additional testing services, and wireline activity across Latin America, along with increased project management activity in Mexico and Ecuador. Partially offsetting these increases were reduced drilling-related services in Norway and the Gulf of Mexico. Moving on to our geographic results. In North America, revenue increased 3%. This increase was driven primarily by higher well construction, artificial lift, and wireline activity in North America land, increased completion tool sales in the Gulf of Mexico, and additional stimulation and drilling activity in Canada. Partially offsetting these increases were reduced drilling-related, wireline, and stimulation activity in the Gulf of Mexico as a result of the impact from Hurricane Ida. Turning to Latin America, revenue increased 17% sequentially. This improvement was driven by increased activity in multiple product service lines in Argentina, Mexico, and Brazil, as well as higher well construction services in Columbia and improved project management activity in Ecuador. These increases were partially offset by reduced fluid services in the Caribbean. In Europe, Africa, and CIS, revenue was essentially flat sequentially. These results were driven by higher well intervention services across the region, increased well construction services, and completion tool sales in Nigeria, additional pipeline and fluid services in Russia, and increased activity across multiple product service lines in Senegal. These improvements were offset by decreased activity across multiple product service lines in the North Sea and Algeria and lower completion tool sales in Angola. In the Middle East Asia region, revenue increased 2% resulting from improved well construction activity in the Middle East and Australia. These improvements were partially offset by lower completion tool sales across the region, along with reduced wireline and stimulation activity in Saudi Arabia, lower project management activity in India, and lower stimulation activity in Malaysia. In the Third Quarter, our corporate and other expenses totaled $50 million for the fourth quarter, we expect our corporate expenses to moderately increase. Net interest expense for the quarter was $116 million. In the third quarter, we retired $500 million of 2021 senior notes using cash on hand; as a result, our net interest expense in the fourth quarter should decline modestly. Our effective tax rate for the third quarter came in at approximately 24%. Based on our anticipated geographic earnings mix, we expect our fourth-quarter effective tax rate to be approximately 22%. Capital expenditures for the quarter were approximately $190 million. In response to higher demand for our services in both international and North America markets, we are pulling forward spending on long lead time items for our premium equipment and now expect our full-year capital expenditures to be closer to $800 million for the full year. Turning to cash flow, we generated approximately $620 million of cash from operations and almost $470 million of free cash flow during the third quarter. I am very pleased with our working capital performance this quarter as we delivered net cash proceeds from working capital despite our revenue growth. Now let me describe our near-term outlook. In North America, we expect moderate pricing and activity improvements in drilling and completions to drive sequential growth. In the international markets, we expect continued improvement in rig counts, the pace of which will vary across regions. As a result, for our Completion and Production division, we anticipate mid-single-digit revenue growth sequentially, with operating margins expected to expand by approximately 50 basis points. The higher year-end completion tool sales will be partially offset by seasonal North America land activity impacted by the holidays and lower efficiency levels typically experienced in the winter months. In our Drilling and Evaluation division, we anticipate sequential revenue growth of 5% to 7%, and a margin increase of 150 to 200 basis points, due to seasonal software sales and higher overall global activity. I'll now turn the call back over to Jeff.

Thanks, Lance. To summarize our discussion today, Halliburton is on track to deliver strong results and our financial commitments for this year. We see customer urgency and demand for our services increasing internationally and in North America. We expect to benefit from the accelerating recovery and deliver profitable growth in the international markets and maximize value in North America. We prioritize our investments to the highest returns opportunities and are committed to capital efficiency. As our forward outlook unfolds, we expect to deliver strong free cash flow and industry-leading returns for our shareholders. And now, let's open it up for questions.

Thank you. Our first question comes from James West with Evercore ISI. Your line is open.

Hey. Good morning, guys.

Morning, James.

Morning, James.

It is evident that there is a very optimistic global outlook for both North America and International markets. However, it appears that International has performed even better than expected in the last three months since the previous conference call. Could you elaborate on the sources of these positive surprises?

Well, thanks, James. Look, I think broadly if I look out at the improvements, it's really a function of the tightening macro, and what we see and so. I think supply is clearly short. I mean, this underspending that's been happening for really seven years is starting to have an effect on the supply side, and that drives clearly urgency, but it's harder to do. And then along with that, we've got short supply service assets, and that is also driving a great environment for us and Halliburton's in the right places. And so when I think about profitable growth internationally and also maximizing value in North America, that's right in the fairway of where we want to be. And so this beginning of an up-cycle, I think what we'll see are our operators work very hard to improve production, but it's short-cycle style barrels are just going to take a lot more work around the wellbore. And all very good. And it's really, as I said, beginning of what I see as a very strong up-cycle for our services.

Sure. No doubt about that and we certainly agree. One follow-up from me, North America, the 20% number that you put out there, which is actually the same number that we're using, but how much of that increase is activity versus pricing in the inflationary environment that we're now seeing in North America? Meaning, is activity in that scenario up 10%, 12%, is up 15%. How are you thinking about activity levels versus the overall spend level?

I believe it's a combination of factors. We're definitely seeing inflation, although I can't provide a specific number today. However, I do expect pricing to strengthen as we move into 2022, which will contribute to this situation. As part of our strategy to maximize value in North America, we plan to be very focused on where we operate and how we achieve those returns. I anticipate that pricing will continue to rise. While there will be significant efforts in this area, equipment shortages that drive prices could present some challenges for activity levels as we progress through the year, with a tendency for increases in price to outweigh increases in activity.

Okay. Got it. Thanks, Jeff.

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

Good morning team. I want to go back to the comments last quarter, the 400 basis points of margin improvement by 2023. Given we're in a firmer oil macro environment and the activity pick-up that you anticipate. Do you see potential for that actually get pulled forward? And how are we tracking relative to the 400 basis points of their upside or downside, as you tested out real-time.

Thank you, Neil. I’m truly excited about our outlook and the potential to bring it forward. I believe we are on track, and everything I'm observing suggests that we are aligned with the '23 outlook I’ve mentioned. The recovery in oil demand has been somewhat surprising and is exceeding expectations, especially considering the ongoing COVID situation. This trend highlights the critical role of oil and underscores the effects of prolonged underinvestment on oil supply. Operators are expected to intensify their efforts to enhance production, which bodes well for Halliburton. I am very optimistic about our outlook and the pace at which we are moving.

Alright Jeff. And then the follow-up is just return of capital, that $500 million of debt this quarter next year is set up to be a good free cash flow year, how do you think about getting the dividend or capital returns profile to be more competitive relative to the rest of energy?

Yes, Neil, this is Lance. We definitely see an environment that gives us much more flexibility as we approach 2022. In 2021, we implemented a strategy that we are still executing, focusing on EBITDA growth, managing capital expenditures, and prioritizing debt reduction throughout the year. A dividend increase is definitely on our radar as we develop our outlook. We will maintain our focus on reducing debt, and we will expedite this process when it is economically beneficial. There is still work ahead, but we believe we have a great opportunity to tackle all of these aspects as we transition into next year.

Thanks, Lance.

Thank you. Our next question comes from David Anderson with Barclays. Your line is open.

Hi. Good morning, Jeff. So the question on everyone's mind right now is net pricing in the U.S. and whether or not you're getting that now. I was wondering if you could just confirm you have in fact recently put through a pricing increase in U.S. pumping business. And in addition, if you could address the topic of labor inflation and how much is that offsetting pricing and what could that mean if the industry looks to add, say, 20 or so fleets on the coming quarters. Our E&P seem to think pricing is going to stay flat outside of inflation, so I'm just kind of curious where you think that disconnect could be.

I believe the disconnect relates to the supply of equipment and the types of equipment available; there is significant demand. Regarding pricing, we are currently seeing a different trend compared to previous cycles, as it feels more like a process than a one-time event, but we are making substantial progress. There is considerable demand for premium equipment, which remains in short supply, and this situation is likely to persist, which is encouraging. We expect to achieve net pricing now and anticipate this will continue, especially as equipment availability tightens. This trend starts with premium equipment, but I believe we will see similar pricing increases across the entire fleet as we move into 2022. In terms of inflation, we are noticing it, and it has been passed along fairly easily; however, that is not the pricing we are excited about and are already beginning to observe. Regarding labor, if you were to add 20 more fleets in 2022, moving from 40 to 85% utilization, that would bring us close to 100%. This increase will drive significant pricing activity related to equipment, and labor conditions may worsen that situation. Fortunately, at Halliburton, we have been able to manage labor and transportation elements more effectively than the market. I mentioned some of this earlier, and I believe we will continue to see tightening in these areas, which positions us well.

Clearly, labor is an issue everywhere and I'd have to think of the oil field especially acutely. A separate question. You touched on this a little bit, but I'm really wondering what the inventory of kind of both directional drilling and completion tools globally. Now, you're spending only about 5% of revenue on Capex. It's less than half the rate of just a few years ago. Your competitors have also been very capital disciplined. Obviously, not just the E&Ps were capital disciplined, but you guys have been as well. But now on this cost of this global recovery in activity, as you said, multi-year up-cycle unfolding. And we're also seeing the supply chain issues across the industry. I guess my question is, if there's going to be a shortage of type of specialized equipment next year and where do you see it most acute? You talked about reallocating equipment, but I feel like we've done this already a couple of times, and I know you've been moving it around, but it feels like we're kind of coming into this inflection on a lot of this equipment out there, and I'm just kind of curious of your views on that.

We are indeed experiencing tighter conditions, and we will be reallocating equipment to focus on the highest return opportunities. This tightness is a positive sign that will lead to better asset allocation for projects. We see capital velocity as a crucial aspect of our strategy, which we are committed to, as it is essential for driving profitable growth. There will be many opportunities, but we are targeting the most profitable ones. As international activity increases, particularly in short-cycle barrels and offshore operations, we anticipate further capacity utilization. This expected tightness is very favorable for Halliburton and aligns with our positive outlook. We recognize that returns have not met expectations; however, we anticipate improved returns, growth in free cash flow, and believe that a constrained market is key to achieving these goals.

Looking forward to them. Thanks, Jeff.

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

Good morning, everyone. I just wanted to share my thoughts.

Good morning, Chase.

Good morning. I want to follow up on the discussion about North America capital expenditures being up 20%, especially since U.S. onshore will likely increase even more. I'm seeking clarification on how you arrived at that 20% figure. If we examine the operating cash flow of exploration and production companies, it could rise by 30 to 40% year-over-year. This suggests they might spend a smaller portion of that operating cash flow, as they currently allocate about 50%. Moreover, consensus for public E&Ps indicates growth in the high teens, which suggests a more modest growth trajectory for private E&Ps. Therefore, I would like to understand the basis for the 20% estimate for North America.

Thank you, Chase. A 20% growth rate is a solid starting point. It could certainly be higher, especially as activity increases, which tends to drive prices up as well. Looking at 2022, we anticipate a boost in U.S. production given the current commodity prices and supply shortages. We’ve always thought that North America would lead in recovery as we tackle the issue of short supply. However, this growth may be somewhat tempered due to existing frameworks surrounding reinvestment rates, dividend requirements, and compensation structures, which moderates public sector activity. While budgets for this year are not yet finalized, I expect them to reflect this. On the private side, there is clearly a lot of activity. The fact that we’re securing more work indicates a strengthening market. As we adjust prices, we’re exploring opportunities with different operators, but it’s important to remember the saying, you don’t leave a job until you have another one lined up, and we are indeed finding new opportunities. This is all encouraging, but I anticipate tightness in equipment availability as we move forward. Currently, we're estimating growth around 20% for 2022. While this is not a fixed expectation, it certainly could rise, but I also anticipate a very tight market.

Thanks. Can I follow up on the frac maintenance expense? You mentioned it in the press release and during the earnings call. Can you provide more information on how significant it was? Will it recur in the fourth quarter, possibly affecting margins on the CMP side? Additionally, should we view this as an indication that you expect to achieve the needed pricing in 2022 to increase activity on the frac side?

The maintenance expense was minimal, perhaps around a penny. However, we now have clear direction regarding the deployment of that equipment, which suggests we have certainty about where it will be utilized. The initiatives we are undertaking will enhance our margins and extend the equipment's lifespan, making this a prudent choice. More importantly, we have clear insights into where this equipment will be used in 2022, and we want to ensure it's prepared to operate at prices that surpass any maintenance costs. This is a priority for us. In the fourth quarter, we have provided our guidance, which reflects these insights. Overall, I view our clarity on deployment as a significant positive, and we want to ensure we manage everything effectively as it happens.

Right. Perfect. I'll turn it back over. Thanks, Jeff.

Thank you.

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

Guys, good morning.

Hey, Scott.

Morning, Scott.

I want to revisit the topic of domestic inflation. Can you provide any figures regarding the difference between your inflation and the market inflation, considering your advantages? Given that you're implementing what I assume are market-based price increases, what could that combination look like? For instance, if the market pricing rises by 15%, while peers are experiencing around 10% inflation, that would lead to a net 5% for them. However, there's a significant gap for Halliburton. Perhaps your net inflation or pricing gains are closer to 10% because you're not facing as much inflation. It would be helpful if you could share what that inflation gap looks like and give any insights into the potential net pricing gains for Halliburton compared to the competition.

Sure. It's highly competitive information, but we outperformed the expectations you set. Let me detail how we manage these aspects. We have a sophisticated supply chain team that is working diligently and effectively. Prices are being passed on to customers. Our capacity to recruit nationally in the U.S. and to maintain a strong local workforce internationally are both crucial in managing inflation for Halliburton. From the perspective of raw materials, our supply chain sources globally, and we manage logistics, which we expect to improve regarding tightness as we move into 2022. Specifically, we're noticing an increase in available airplane space as the world reopens and more carriers resume operations, which we believe will enhance international logistics concerning raw materials. In North America, our partnership with Vorto is significantly impacting our operations. We are successfully adding and retaining drivers, which has been challenging but very effective. I'm confident that we are excelling in managing inflation for Halliburton, but that's a different discussion from our pricing outlook for 2022.

Just a quick question about international activity, Jeff. You mentioned an acceleration in international operations next year. Do you have any early estimates on what that figure might be? Are you considering potentially mid-range or high-range growth? We've seen 20% growth in previous years during strong upcycles. Can you provide any early insights on the expected growth of international activity for next year?

Yeah. Look, the entire international market is a huge market, and so to move all of that at a high rate is probably more difficult to do, particularly given where the supply chain actually in project backlog is for clients. But nevertheless, could it be low-teens to mid-teens? Yeah, certainly could be. Super excited about Latin America and the pace of growth and the outlook there. Middle East should be very strong. And I think we're going to see the kind of broad-based improvement that allows pricing and pockets of places to continue to get better. So it's going to be good. It should be really, really good market internationally. I think we build into it throughout 22 as well.

Got it. Thank you.

Thank you.

Thank you. Our next question comes from Arun Jayaram with JPMorgan. Your line is open.

Good morning. I wanted to get a bit more color on some of the implications of Halliburton's decision to reposition some of your frac fleets to get the better pricing you mentioned and exposure to long-term contracts. So I wanted to maybe get a sense of are you mobilizing that equipment today? So, is that going to be a little bit of a drag on Q4, and as you get that equipment into those newer markets, does that give you some tailwinds as we think about 2022?

I believe we are entering 2022 with some positive momentum. While we have short-term challenges, these won't significantly impact our guidance. Our focus is on maximizing value in North America, which is a key strategic goal for us. This involves making informed decisions about our existing assets, and I think you've already started to see these efforts from Halliburton. I'm really optimistic about our discussions with customers, which primarily revolve around 2022 and even extend into 2023. We need to ensure our assets are utilized where they'll provide the greatest value for both us and our clients, which may involve relocating them. When we do this, we often take the opportunity to perform maintenance and upgrades. This approach reflects our commitment to two main strategies: maximizing value in North America and enhancing capital efficiency.

Got it. Got it. Any color, Jeff, on which basins that you sense is a better opportunity to get better pricing in these long-term commitments?

Well, fortunately, we're in all the basins. And so I don't really take a view of basin by basin as much as we do customer opportunity by customer opportunity, and that can be wherever it might fall. I'm not going to necessarily carve out a particular location. Clearly, there's more activity nearly in all of the basins today, and so that's very encouraging.

My follow-up is just on international. There are 3.5 to 4 million barrels offline by OpEx Plus. I wanted to get your views on whether you are seeing any shifts internationally from customers, perhaps moving from a focus on maintenance Capex and sustaining Capex projects to growing productive capacity. If so, which markets are you observing a shift toward a bit more growth?

I believe that internationally there has been significant underspending for quite some time, and many countries are currently experiencing a decline. Overcoming this decline is challenging, and while efforts will be made to address it, they might only stabilize production rather than increase it. This situation works in our favor, as we anticipate increased activity in the Middle East and Latin America as we enter 2022. However, it's important to note that many clients are still practicing capital austerity, which means production will likely remain focused near the wellbore. This is advantageous for us, and we expect a lot of work to be completed. Nonetheless, I foresee supply remaining tight for quite a while. The industry hasn’t seen a resurgence in large multi-billion-dollar projects with long payout periods like we did in 2014. This indicates reduced spending on infrastructure and a greater emphasis on our services, which is very encouraging.

Thanks a lot.

Thank you.

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

Good morning.

Good morning, Ian.

Jeff, it seems that Latin America has been a significant contributor to your success this year. You've seen remarkable growth in that region, and the overall market activity has increased, but you appear to have outperformed expectations in Latin America. Could you elaborate on those strengths? You also mentioned synchronized global growth for the coming year. Specifically for Latin America, do you anticipate maintaining momentum similar to the growth seen in the rest of the Eastern Hemisphere next year?

Yes, I do. Look, I'm very encouraged about Latin America. And that team has punched above its weight in Latin America. We've got an excellent team, great position. We're in every country. The technology introduction has been effective there, which I've talked about sort of our Drilling Tools and what we've been able to accomplish. Our project management capabilities are very strong in Latin America, and it's allowed us to outperform in my view. I think that continues into 2022 as more work comes on. And again, that's a part of the world where oil production is very important to economies and operators. I think that we'll continue to see a strong Latin American business.

Great. Thanks, Jeff. I wanted to follow up with Lance after. You had a really good quarter with free cash, due to the disposals and some working capital as well. Are there any indicators for Q4 regarding anything beyond the basics of free cash related to net disposals and working capital movements as we approach the year-end?

Yeah, I think we certainly expect continued strength in the operational profit piece of the equation. That's pretty obvious based on our guidance for the quarter. Some of that will be offset by some of that acceleration in Capex spend that we talked about in my prepared remarks.

We are focusing on finalizing our year regarding capital expenditures. It's important to monitor how working capital develops. We have been dedicated to managing working capital and the necessary investments to support our growth. This quarter was positive, as we generated cash from working capital even while our revenue was increasing globally. Historically, this is encouraging, but maintaining this working capital momentum in the future may pose some challenges. Overall, I am pleased with the performance of free cash flow this year, and I remain optimistic about its implications for next year as well.

Great. Thank you, Jeff.

You bet. Thank you.

Thank you. That's all the time we have for questions today. I'd like to turn the call back to Jeff Miller for closing comments.

Thank you, Katherine. Look, I'm pleased with the quarter and look forward to speaking with you again at the end of the next quarter as we see this multiyear up-cycle continue to unfold. Katherine, you can close out the call.

This concludes today's Conference Call. Thank you for participating. You may now disconnect.