Good day and thank you for joining us. Welcome to the Halliburton Company Fourth Quarter 2023 Earnings Conference Call. I will now turn the call over to David Coleman, Senior Director of Investor Relations.

Hello and thank you for joining the Halliburton Fourth Quarter 2023 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; and Eric Carre, Executive Vice President and CFO. Some of today's comments may include forward-looking statements reflecting Halliburton's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2022, Form 10-Q for the quarter ended September 30, 2023, 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 reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter earnings release and in the Quarterly Results & Presentation section of our website. Now I'll turn the call over to Jeff.

Thank you, David, and good morning, everyone. 2023 was a great year for Halliburton. Both of our divisions achieved their highest operating margins in over a decade, and we returned $1.4 billion to shareholders. Here are the highlights. We delivered full year total company revenue of $23 billion, an increase of 13% year-over-year; and operating income of $4.1 billion, an increase of 33% compared to 2022 adjusted operating income. Our international business demonstrated strong growth with our revenue up 17% year-over-year despite our exit from Russia in August of 2022, completing 2 consecutive years of high teens growth. Our North America business showed strength with revenue up 9% year-over-year despite rig count declines. Completion and Production revenue grew 18% year-over-year and margins expanded 312 basis points. Drilling and Evaluation grew 7% year-over-year and margins expanded 171 basis points. Turning now to Q4, where Halliburton delivered exceptional margin performance supported by better-than-anticipated completion tool sales globally, strong performance across multiple high-margin product lines and favorable weather in North America. Completion and Production margins finished the year almost 100 basis points higher than Q4 of 2022. International revenue grew 12% year-over-year, led by the Europe-Africa region, which grew revenue 17%. Finally, during the fourth quarter, we generated $1.4 billion of cash from operations, $1.1 billion of free cash flow and repurchased approximately $250 million of common stock and $150 million of debt. Before we continue, I want to take a moment and thank the Halliburton employees around the world who made these results possible. Our success last quarter and throughout 2023 was a direct result of your hard work and dedication. Thank you for your relentless focus on safety, operational execution, customer collaboration and service quality performance. Let me begin with my views on the strength of the oilfield services market. As we look past the new cycle and near-term commodity price volatility, the fundamentals for oilfield services remain strong. Here are 2 reasons why. First, we see an increase in service intensity everywhere we operate. Whether it's longer laterals in North America, smaller and more complex reservoirs in mature fields or offshore deepwater, customers require more services to develop their resources, not fewer. Second, long-term expansion of the global economy will continue to create enormous demands on all forms of energy. I expect oil and gas to remain a critical component of the global energy mix with demand growth well into the future. With this positive macro outlook, I believe Halliburton's strong execution, leading technology and collaborative approach will drive demand for Halliburton's products and services around the world. Now let's turn to international markets, where Halliburton's performance delivered another year of profitable growth. Halliburton's full year international revenue grew 17% year-on-year, and our quarterly revenue grew 12% compared to the same quarter of last year. Each region delivered year-on-year revenue growth throughout 2023, and both divisions delivered improved international margins year-on-year. Our results in 2023 demonstrate the effectiveness of Halliburton's profitable international growth strategy, the strength of our global competitiveness across product lines and the power of our value proposition with customers. In 2024, we expect international E&P spending to grow at a low double-digit pace and foresee multiple years of sustained activity growth. Although we anticipate regional differences in growth rates for 2024, we believe the Middle East/Asia region will likely experience the greatest increases in activity with other regions closely behind. As we look out to 2025, we expect Africa and Europe, among others, to demonstrate above-average growth. Beyond 2025, we see an active tender pipeline with work scopes extending through the end of the decade, which gives me confidence in the duration of this multiyear upcycle. While we expect overall activity growth, we also see above-market growth within our well construction product lines, where customers choose Halliburton to improve the reliability, consistency and efficiency of their drilling operations. One such technology is LOGIX' autonomous drilling platform, which is now used on 90% of our iCruise runs worldwide. Customers also rely on Halliburton's subsurface expertise to develop today's most complex reservoirs. This requires technologies to reduce uncertainties, such as our DecisionSpace 365, unified ensemble modeling and advanced formation evaluation systems like our iStar logging well drilling platform, and reservoir Xaminer formation testing service. These technologies enable customers to target small reservoirs, identify bypassed reserves and gather reservoir properties in real time. We see reservoir complexity increasing worldwide, and I expect the capabilities of these systems will continue to deliver customer value and lead in overall growth within our formation evaluation portfolio. For Completion and Production, we also expect increased adoption of our technologies like intelligent completions, multilateral solutions and artificial lift. Our intelligent and multilateral completions enable customers to produce, inject and control multiple zones in a wellbore, which is critical for offshore developments, a segment we expect to outpace the overall market. In artificial lift, our strategy targets markets like the Middle East and Latin America, where our differentiated performance and existing footprint create a solid foundation for profitable growth. We also expect strong demand for our services in carbon capture and storage, where Halliburton's leading capabilities to design, deliver and validate reliable barriers play a crucial role. As our customers invest in carbon storage, our tailored cement designs and casing equipment technology enable them to address the unique challenges of long-term carbon sequestration. With this activity growth, the availability of equipment and experienced personnel remains tight. We expect asset-intensive offshore activity to increase, which will further tighten the market. As offshore represents over half of our business outside North America land, we expect this activity to drive improved pricing and higher margins for our business. I am confident in Halliburton's strategy for profitable international growth, and I am excited about our performance in 2024 and well into the future. Turning to North America. Halliburton's strategy yielded strong results in 2023. Our full year North America revenue of $10.5 billion was a 9% increase when compared to 2022 despite sequentially lower rig count. Fourth quarter margins in North America land were relatively flat quarter-over-quarter despite lower revenue. Our full year and fourth quarter results demonstrated the strength of our differentiated business and the successful execution of our strategy to maximize value. The dynamic North America market continues to evolve with larger customers and stable programs, elevated quality expectations and greater demand for technology to improve recovery and well productivity. This evolution fits perfectly with Halliburton's value proposition. Our Zeus electric fracturing solution is highly sought after in this market, where its seamless combination of electric frac, automation and real-time subsurface measurements uniquely address customer requirements. We believe customers demand Zeus because it provides the lowest total cost of ownership and it's shown to be the most proven and reliable solution in the market. The market pull for this technology has been strong. The combination of Zeus fleets working in the field today and Zeus fleets contracted for 2024 delivery represent over 40% of our fracturing fleet. I expect well over half of our fleets will be electric in 2025 with all of these e-fleets on multiyear contracts generating full return of and return on capital during their initial contract terms. Consistent with our strategy from the beginning, we plan for our Zeus deliveries in 2024 to replace existing fleets rather than add incremental fleet capacity. This is how we maximize value in North America. The growth of Zeus and our commercial approach has transformed the North America completion services market. Technology is only transformative when adopted, and is only adopted at the rate of Zeus when it works and creates meaningful value for our customers. Zeus' rapid adoption, both by new and repeat customers, tells us our solution is the right one for North America. Turning to our 2024 North America outlook. We expect continued strong business with the combination of stable levels of activity in the market and the contracted nature of Halliburton's portfolio. We expect this to result in a flattish revenue and margin environment for Halliburton. To close out, I am confident in our strategies to maximize value in North America and for profitable growth internationally. In 2023, Halliburton demonstrated the power of these strategies, the consistency of our execution and the value of our differentiated technology. We generated about $2.3 billion of free cash flow during the year, retired approximately $300 million of debt and returned $1.4 billion of cash to shareholders through stock repurchases and dividends, which represents over 60% of our free cash flow. Today, I am pleased to announce that our Board of Directors approved an increase of our quarterly dividend to $0.17 per share. Our outlook for oilfield services remains strong, and I expect we will deepen and strengthen our value proposition and generate significant free cash flow. Now I'll turn the call over to Eric to provide more details on our financial results.

Thank you, Jeff, and good morning. 2023 was a strong year for Halliburton. Multiple financial and operational metrics showed the best business performance in recent memory, any one of which are worthy of highlighting. More important than any single metric, however, the overall business performance demonstrated the effectiveness of our strategy. Here are a few highlights. In our C&P division, our 2023 margins of 20.7% were the highest since 2011. In our D&E division, 2023 margins of 16.5% were the highest since 2008. In North America, our strategy to maximize value is about structurally changing the risk and return profile of our business. We delivered steady margins through the year despite lower activity driven by the rollout of our Zeus fleet and their associated contract terms and the strength of our well construction business. Internationally, our profitable growth strategy drove revenue and margin improvement across all of our geographies. Revenue was the highest in the last 8 years, and profit margins were the highest in over a decade. Beyond pricing and activity, this is the result of the multiyear investment in our drilling business and technology differentiation across multiple product lines. Our focus on capital efficiency allowed this revenue growth and structural margin improvement while capital spending remained within our target range of 5% to 6% of revenue. Collectively, these results generated about $2.3 billion of free cash flow, the highest cash generation in the last 15 years. Let's turn now to our fourth quarter results. Our Q4 reported net income per diluted share was $0.74. Net income per diluted share, adjusted for losses in Argentina primarily due to the currency devaluation, was $0.86. Total company revenue for the fourth quarter of 2023 was $5.7 billion. Operating income was $1.1 billion and the operating margin was 18.4%, a 95 basis point increase over Q4 2022. Beginning with our Completion and Production division. Revenue in Q4 was $3.3 billion, operating income was $716 million, and the operating income margin was 22%. Our better-than-anticipated results were driven by the best fourth quarter of completion tool sales in 9 years, strong performance across multiple product lines and favorable weather in North America. In our Drilling and Evaluation division, revenue in Q4 was $2.4 billion, operating income was $420 million, and the operating income margin was 17%, an increase of 122 basis points over Q4 last year. These results were in line with our expectation and driven by international software sales, higher project management activity in the Eastern Hemisphere and increased fluid services in the Western Hemisphere. Now let's move on to geographic results. Our Q4 international revenue increased 4% sequentially, which was our highest international revenue quarter since 2015 and tenth consecutive quarter of year-on-year revenue growth. Q4 sequential growth was led by the Middle East region driven by improved activity across multiple product lines and strong year-end completion tool sales. Europe/Africa demonstrated sequential growth consistent with the overall international market with higher activity in Africa offsetting lower product sales in Europe. Latin America revenue declined slightly in the fourth quarter, where reduced completion-related activity followed a very strong third quarter activity improvements in the Caribbean. In North America, revenue in Q4 decreased 7% sequentially driven primarily by a decline in U.S. land activity as a result of typical holiday-related slowdowns. However, we experienced fewer weather-related events than expected. As weather-related downtime is more expensive than planned downtime, this means our Q4 North America land margins were higher than anticipated. Additionally, completion tool sales in the Gulf of Mexico delivered the strongest quarter in 3 years. Moving on to other items. In Q4, our corporate and other expenses were $63 million. For the first quarter of 2024, we expect corporate expenses to be flat. Our SAP deployment remains on budget and on schedule to conclude in 2025. In Q4, we spent $15 million or about $0.02 per diluted share on SAP S/4 migration, which is included in our results. For the first quarter of 2024, we expect these expenses to be approximately $30 million or $0.03 per share due to the timing associated with accelerated phases of the rollout. In 2024, we expect to spend $120 million and $80 million in 2025. Net interest expense for the quarter was $98 million, slightly higher than expected primarily due to premiums associated with debt buybacks. For the first quarter of 2024, we expect net interest expense to be roughly $85 million. Other net expense for Q4 was $16 million lower than our prior guidance due to the non-GAAP treatment of the Argentinian peso devaluation. For the first quarter of 2024, we expect this expense to be about $35 million. Our adjusted effective tax rate for Q4 was 17.9%, lower than expected due to discrete items. Based on our anticipated geographic earnings mix, we expect our first quarter of 2024 effective tax rate to be approximately 21%, slightly lower than our anticipated full year effective tax rate. Capital expenditures for Q4 were $399 million, which brought our full year CapEx total to $1.4 billion. Approximately 60% of our CapEx was deployed to international and offshore markets in 2023, and we expect this ratio to remain similar in 2024. For the full year of 2024, we expect capital expenditures to remain approximately 6% of revenue. Our Q4 cash flow from operations was $1.4 billion and free cash flow was $1.1 billion, bringing our full year free cash flow to about $2.3 billion. For 2024, we expect free cash flow to be directionally higher. Now let me provide you with some comments on our expectations for the first quarter. As is typical, our results will be subject to weather-related seasonality and the roll-off of significant year-end product sales. As a result, in our Completion and Production division, we anticipate sequential revenue to be flat to down 2% and margins lower by 125 to 175 basis points. In our Drilling and Evaluation division, we expect sequential revenue to decline between 1% to 3% and margins to be lower by 25 to 75 basis points. I will now turn the call back to Jeff.

Thanks, Eric. Let me summarize our discussion today. 2023 was a great year for Halliburton. We generated about $2.3 billion of free cash flow and returned over 60% of free cash flow to shareholders through dividends and stock repurchases. We're committed to returning over 50% of our free cash flow to shareholders in 2024. For our international business, we expect low double-digit growth driven by the power of our value proposition, global competitiveness across all product lines and our profitable growth strategy. In North America, we expect a continued strong business driven by stable activity, our differentiated technical position with our Zeus electric frac solution and the increasingly contracted nature of our business. And now let's open it up for questions.

The first question comes from David Anderson with Barclays.

So, regarding the C&P margins that remained stable during the quarter, and with U.S. land also staying flat, could you elaborate on how your expanding e-frac fleet affects your bottom line? We understand the operational benefits, but I’m curious about the financial implications. How does e-frac compare to your Tier 4 dual fuel and diesel fleets in terms of pricing and operating costs? I’m trying to get a clearer picture of how beneficial the new equipment is. Additionally, with E&P consolidation progressing and looking ahead to the next 12 to 24 months, do you anticipate that most of your e-frac fleets will be with larger operators under multiyear contracts?

Thanks, Dave. E-fleets are beneficial for several reasons. First, they operate very efficiently from our perspective, which enhances their value. They provide significant value to clients and are therefore viewed and priced differently in the market. I anticipate this trend will continue. Importantly, the contracted nature of these fleets means that pricing is stable because it is locked in over time, allowing for accurate value assessments by both sophisticated buyers and ourselves. Additionally, the types of customers interested in e-fleets typically have consistent programs and a clear strategic vision for their business, and they are committed to adopting the technology long-term. An electric fleet not only offers an efficient and cost-effective solution but also incorporates automation that enhances precision in fracking like we've never seen before. Clients are confident that they are achieving their delivery expectations. This contributes to the e-fleet's value because it adds significantly more value compared to a Tier 4 diesel fleet, resulting in a different return profile for these assets as we enter the market. I hope that clarifies things, Dave.

It does make a clear distinction. I noticed in your release that you announced two new collaborations with other service companies: one focused on reservoir analysis and the other on managed pressure drilling. This effectively addresses some of the weaker areas in your portfolio. Reflecting on the previous cycle, there were several acquisitions, but I don't recall many collaborations. From my perspective, this could suggest you're exploring options, but it also appears to be a smart approach to enhance your product lines without significant capital expenditure. Could you elaborate on the strategy behind this and explain why it differs in the current cycle? Do you anticipate pursuing more collaborations in the coming years?

I believe our approach is primarily driven by the technology we have developed, particularly in areas like digital cores and digital evaluation. Instead of trying to fully enter the core space, we prefer to collaborate with leading core analysis companies, which allows us to leverage our technology effectively. Our strategy is complementary, allowing us to achieve better returns through the initiatives we are already familiar with. We hold Core Labs in high regard and feel we can add value through our partnership rather than pursuing independent ventures. Regarding Oil State, while they possess impressive technology, we are cautious about investing heavily in their broader operations. We recognize where we can generate significant returns for Halliburton. Similarly, with TechnipFMC, I believe they stand out as the top subsea company globally. Our close collaboration involves developing joint intellectual property, particularly in electric completions. Overall, we aim to capitalize on our core strengths and competitive advantages in partnership with others, rather than venturing into areas that don't align with our strategic goals.

Our next question comes from Neil Mehta with Goldman Sachs.

The first question is around a more macro question, which is one of the things that surprised us last year was the exit of U.S. oil production, which came in above, I think, where consensus expectations were. You have unique visibility into U.S. completion and volumes. What do you think happened there? And as we think about 2024, how do you think about exit rate of U.S. growth? And maybe talk about the moving pieces, including DUCs.

Yes. When I consider production growth for 2024, it's clear that production relies on service intensity. In simple terms, more sand translates to more barrels. We observed peak service intensity levels in the first half of last year, with a lot of that intensity returning in the latter half. Part of this relates to efficiency, as we are now delivering more sand to the reservoir, facilitated by various forms of technology and E-fleets. However, predicting exact actions of operators for the upcoming year is challenging, as each operator has their own strategy. I anticipate a higher rig count since I believe we will eventually exhaust DUCs. I would expect lower production figures, as I think stable customers will adhere to their plans, but there's a noticeable absence of smaller companies attempting to significantly increase production. From Halliburton's perspective, the market appears stable, but the overall production situation will depend on how much additional sand is pumped to counteract the inevitable decline rates that occur when production accelerates, as such increases lead to quick declines.

Good color there. And then you made a comment that you feel like you have international visibility through the end of the decade. Can you expand there and help give the market a little more confidence about what the post 2024-2025 file looks like?

Well, look, I mean we are working on tenders today for work all of next year and the following year. I mean when we talk with customers, I think about what's going to happen. Really, I don't think the North Sea and West Africa even really wake up until 2025. We've seen strong activity in those markets. However, the real growth we're working on planning today doesn't even start until '25. And all of these things are 3- and 4-year-type efforts. I mean these aren't individual wells in places like that. These are programs. And so we're actually on contract with a client working on just the planning of logistics for '25-'26 and beyond. And so I've just got a lot of confidence in terms of what we see in hand, the tender pipeline and then the pipeline of work that we are planning with customers that may or may not even be tendered. It's just more a matter of it will be done. And we've got clarity on that in '25 and beyond.

Our next question comes from Arun Jayaram with JPMorgan.

Jeff, you mentioned that 40% of your contracted fleets this year will be Zeus going to 50% or more in '25. I was wondering if you could give us a sense of how your commercial model for Zeus has evolved. And one of the things we get questions on is just the significant amount of completion efficiency gains that the industry has generated. And what is the sharing of that between E&P and service company?

I believe the value generated by Zeus is what drives its contracting nature. When we began developing Zeus some time ago, our aim was to maximize value for North America. We were convinced that the technology would create so much value that we wouldn't proceed with it until it was demonstrated for customers. The nature of longer-term contracts, typically three years, reflects our approach of allowing the market to dictate demand rather than forcing it. As the system continues to advance, incorporating automation and measurement, it will increasingly enhance the value for our customers, who will find it integral to their value creation processes. From an efficiency perspective, our equipment operates very efficiently. As we transition from zipper frac to simo frac and, in this instance, trial frac with the customer, the increase in horsepower demand isn't proportional. We become more efficient as volumes rise, which is a distinctive feature of Zeus and its scalability. This efficiency allows Halliburton to deliver significant value to both itself and its clients by utilizing less equipment than traditional methods would require. The combination of reliability and automation is crucial, especially as fracs become larger and precision becomes increasingly important. We are engaging in collaborative efforts with our clients to leverage this technology, and I am particularly excited about the groundbreaking work we are doing with this customer in the case of a trial frac.

Great. Jeff, my follow-up, natural gas is on people's minds in North America. Just given the contango in the market, 2024 is just above 2 50. I was wondering if you could give us a sense of how much of your activity is levered just to dry gas. And what are some of the risks to the earnings picture from a soft market for gas this year?

We have very limited exposure to gas in our business. Currently, the exposure we do have is somewhat linked to the Zeus solution, along with a few other aspects. However, gas work isn't a significant portion of our overall portfolio, so we focus on what we can realistically project. There could be equal potential upside in gas as LNG becomes available, but we haven't included that in our current outlook. Nonetheless, this represents a noteworthy opportunity for North America, potentially more so than a risk.

Our next question comes from Roger Read with Wells Fargo.

And actually, last week I visited a tribal frac site and saw the e-fleet. So pretty impressive setup. One of the things the customer mentioned was a slightly different, I guess, sort of price-to-value contract structure. Looks like from a margin standpoint, you're doing fine on that. But is there anything you can kind of enlighten us on, on maybe how we thought about traditional pressure pumping contracting and a lot of spot exposure versus kind of how this is going through? What does it mean in terms of sharing gains with the customer? What's the right way for us to think about that on kind of a price...

Thank you, Roger. Our goal is to create value for our customers. We believe that providing meaningful value is essential to being a long-term partner. We approached this with a focus on maximizing value, which we define as maximizing returns, particularly in these environments. We don't intend to engage in spot market transactions, as they often result in a win-lose situation. When the market tightens, operators typically face losses, and vice versa for service companies. Our strategy is to avoid that dynamic and instead pursue fair contracts that offer substantial value in both pumping and recovery. We believe we are well-positioned to achieve this. Improving recovery or production rates is a long-term endeavor, and we aim to collaborate with customers who share that vision. We are excited about the customers we are working with to tackle the pressing challenges in North America's fracking industry. We prefer to be involved in this process, as success in the fracking market requires it.

Appreciate that. The follow-up question I have, it's unrelated, but I think kind of critical to the announcement this morning raising the dividend. What is the right way for us to think about your uses of free cash flow between, as you did in the fourth quarter, sort of elective repurchases of debt as opposed to maturities? But as we're thinking debt, dividends are pretty fixed here and then share repurchases. What way do you want us to think about the return of free cash flow?

Yes. Thanks, Roger. It's Eric. So think about it in a fairly similar way as what we did in 2023, except higher. So we increased the dividend by 6%. We're now back to about 95% of where we were pre-COVID. In terms of buyback, we intend to continue buying back shares. Our intention today is to buy back more share in dollar terms in 2024 than we did in 2023. At the same time, as we did also in 2023, we intend to continue to retire debt and continue to strengthen the balance sheet. So overall, fairly similar structure in '24 as what we did in '23 but kind of ramping up everything a bit higher.

Our next question comes from James West with Evercore ISI.

So Jeff, you mentioned that West Africa and the North Sea won't see significant activity until 2025, with many discussions focused on 2025-2026. I understand that some of your partners like FTI are placing bids for projects that won't commence until 2029 and 2030. Offshore rig companies are also securing contracts extending to 2026-2027. This level of visibility in this cycle appears to be quite unique. I'm interested to know if this aligns with your perspective on customer behaviors and the ongoing conversations you're having. It seems the industry is preparing for a prolonged cycle, though it’s important to acknowledge that macroeconomic factors could disrupt this trajectory. However, for now, given the current oil price range, it seems like everything is positioned for a sustained period of activity.

I'm cautious about speaking for the entire industry, but I can say that, including Halliburton, we are very focused on operating our businesses to achieve strong long-term returns, which benefits both our clients and us. This level of visibility aligns with companies planning for future profitability to benefit shareholders, and that’s exactly what we’re doing. I believe this sets us up well for the remainder of this decade because we see strong demand and our value proposition centers on collaboration and engineering solutions that maximize asset value for our customers. This environment enables us to do just that. Additionally, when we prioritize returns, we avoid overinvesting in our business. We've indicated where our capital expenditures will be and the level of growth we anticipate, ensuring we manage profitable international growth effectively. Given the natural economic factors at play, assets are tight and will likely remain so for an industry focused on returns, which is what we are committed to. The structure of our capital expenditures informs our investment strategy and the contracts we secure, while also maximizing cash returns to shareholders. Overall, I view this as a very positive environment.

Okay, we definitely agree with that. I have a follow-up question, which I’m not sure if Eric will address. The D&E margins, which are more influenced by international growth, where we expect much of the volume growth to come from and where operating leverage and inflation will play a role, seem to be stabilizing. As a result, incremental improvements should occur. What are your expectations for margins? You provided guidance for this quarter, but considering it's seasonal, where do you see margins heading? Alternatively, you could discuss incrementals for D&E as we look into 2024 and 2025.

Yes, Jim. To address your point, looking at Q1, there is definitely a seasonal effect. However, more importantly, if we examine the year-on-year trends in D&E margins, it's significant to note that, as Jeff mentioned in the script, we achieved our best D&E margins in 15 years. This indicates that many of the investments made over the past few years are yielding results. It's essential to monitor the overall direction of margins in the business. For us, it’s about balancing revenue growth with margin enhancements and improved returns as we continue to invest in the D&E sector. Therefore, we anticipate margins will continue to strengthen as we move into 2024. We expect our D&E margins to be considerably higher in 2024 compared to 2023. There may be some fluctuations from one quarter to the next, as this business often has various dynamic elements. Nonetheless, margins are expected to improve in 2024 relative to 2023.

Our next question comes from Scott Gruber with Citigroup.

So Jeff, as I step back and think about the outlook for your U.S. business, it appears that you're on a pathway to establishing a business that will deliver more consistent and better free cash flow in the years ahead than we've seen historically, in part that's given the e-frac investment across the portfolio. So I'm wondering if you'd just give some color kind of around that. We're seeing the consistency now. If I heard correctly, the CapEx color doesn't suggest a material reduction in domestic CapEx into '24. So curious kind of around kind of bending that curve lower and just kind of overall helping this business model that's much more consistent and less CapEx-intensive ultimately.

Yes. Thanks. And that is precisely what we set out to do, and that's what's playing out now. In terms of a consistent business that generates strong free cash flow through the cycle, and that's been our intent all along. With the way we bring Zeus fleets to market, the way we invest in North America broadly, we are very deliberate about how we maximize value over the long term in North America. I think you saw that play out in the last 2 quarters as we've seen the market moving around. But nevertheless, steady drumbeat of execution and cash flow delivery by Halliburton. I expect to continue that because that is precisely our strategy. And so when it comes to cash flow, our capital allocation of our capital budget, we're going to allocate it to those things where we see that opportunity, which we certainly see that with Zeus fleets. But remember, that's a demand pull, not a push strategy. So we don't build fleets until we have contracts for fleets. That's a completely different environment than maybe we would have seen in prior cycles from Halliburton. We've developed some very good, in my view, fit-for-purpose drilling technology for North America. But we're not going to overbuild it. We're selling it into the market as the market will take it. There's a lot of excitement about it, but our approach is still going to be consistent delivery of margins and free cash flow in North America. I think you'll see us continue to do that. And that means we put e-fleets in the market, we retire sort of the fleets that are at the bottom of the stack and continue that march forward.

Got it. Okay. Appreciate the color. Unrelated follow-up here. Leverage is down to about 1x now, which is good to see. It sounds like the cash return could step up a bit. Can you just kind of walk us through your thoughts as you move forward in time, the cycle continues, you'll generate more free cash flow, leverage continues to come down. Outside of any M&A, should we think about that shareholder return as a percentage of free cash flow moving higher given that you will be trending somewhat on leverage on a go-forward basis?

Yes, I believe that for 2024, you can anticipate our free cash flow to be at least 10% higher than in 2023. This increase will significantly enhance our dollar returns. In terms of percentage, we are still committed to a 50% return to shareholders overall. However, it seems reasonable to expect that our percentage return will be at least in line with what we achieved in 2023.

Our next question comes from Luke Lemoine with Piper Sandler.

Jeff, your North America revenue significantly outperformed the U.S. land rig count in '24. And I would guess some of the factors were Zeus fleet, service quality, a more stable customer base and a pickup in the Gulf of Mexico. But could you talk about any other factors that drove this? And then with the U.S. land rig count most likely down in '24, do you think North America revenues could be up in '24 for you?

Yes. The outperformance is due to the stability of the business as I mentioned. A significant part of that is having 40% of our fleet contracted long-term by the end of 2024, which creates a stable environment. While the rig count will fluctuate, the main portion of our business remains very stable. The reality is that the North America business is substantial. We experienced growth in the Gulf of Mexico and other offshore areas. However, the large and stable North America land business will dampen some of that growth. As we move into 2025, I anticipate similar performance from our North America business, largely independent of rig counts. I do believe that as drilled but uncompleted wells are utilized, we'll see an increase in rig count, primarily to supply the necessary inventory of DUCs to maintain smooth operations. Our customers focus more on converting wells into production rather than on the number of active rigs. A lot of planning goes into ensuring stable well completions. While I won't attempt to forecast rig counts right now, I see potential for growth in North America. We prepare our business based on observable trends, expecting stability, although there are factors like gas activity that could drive rig counts up, particularly as LNG plants come online. Whether that happens in 2024 or 2025 remains to be seen, but I believe Halliburton will capitalize on that growth, potentially starting this year. For now, we are planning our business with a focus on returns.

Okay. And I guess a follow-up with this more stable North American business, you talk about your North American land margins being ascribed flat in 4Q. Could you talk about how you see this progressing in '24 kind of with that stable business?

Let's keep it steady and stable as we move forward. We have a robust international business that contributes significantly and is continuing to grow and improve margins. We are satisfied with our current position. We expect U.S. revenue and margins to remain flat across different cycles, which is the target we set for the business. There is clearly potential for growth. From a C&P standpoint, our market leadership in areas like PE, cementing, Baroid, and other activities worldwide will benefit us. We anticipate a meaningful participation in that, especially regarding margins. Our priority in North America is to maintain stability through cycles, and I am confident we are achieving that.

Our next question comes from Stephen Gengaro with Stifel.

I wanted to follow up on the previous question regarding margins in C&P and the Zeus fleets. When discussing these contracted assets, are there any differences in the pricing dynamics compared to prior cycles and quarterly price openings? How should we consider the pricing for those assets in an environment where there may be some excess capacity in the short term from perhaps less competitive older assets in the market? Is pricing generally stable? Can you elaborate on that?

These are long-term agreements where we understand the asset costs and required returns. It becomes a matter of calculating duration. We deal with variable market costs that we don’t control or own, which we simply pass on to our customers, like the cost of sand and other materials. The competitive advantage we create lies in our equipment; we enter these long-term contracts without needing price adjustments. We work directly with clients to determine the returns for both them and Halliburton, fixing those terms for the future. This approach remains consistent, regardless of market fluctuations. While the spot market will shift as it will, our long-term perspective on value creation allows both clients and Halliburton to evaluate outcomes effectively. This fundamentally distinguishes our strategy in North America.

Great. And then just one quick one, probably for Eric, on the cash flow statement. Anything we should know about working capital parameters in '24 versus '23 that would be much different as we kind of build out the models, whether it's DSOs or payables, et cetera?

No. I think it’s important to note that we expect our free cash flow to be at least 10% higher in 2023. This improvement will come from increased income and enhanced efficiencies in working capital. We focus a lot on improving Days Sales Outstanding (DSOs) and Days Inventory Outstanding (DIOs). When I mention this, I’m referring to implementing various initiatives rather than just pushing the team. For instance, we’ve invested time in automating the invoicing process for integrated services, which is quite complex due to our various product lines and customer organizations. By automating this process and reducing cycle time, we can enhance DSO. Additionally, we rolled out a company-wide demand planning software 18 months ago, and when combined with the future rollout of S/4, it will provide us with significantly better capabilities to plan our business and reduce inventory without increasing operational risk. These efforts are aimed at structurally improving working capital efficiency, which is another reason we anticipate an improvement in our free cash flow next year.

Our next question comes from Marc Bianchi with TD Cowen.

I just wanted to first clarify on the North America outlook that you provided for it to be flat. That's a comment for the full year. Is that correct? Or was that a comment from where run rates are today?

We believe that Q1 performance will be better than Q4. Seasonal activity typically returns in Q4. Looking ahead to the rest of the year, our fleets are mostly contracted for 2024, which is what we are aware of at this point. There are potential factors that could alter this situation. For instance, if production levels are low, clients might accelerate their activity. There are several variables that could positively influence our forecast. However, as we plan for 2024, we aim to generate the returns we expect based on our current insights.

No, there's nothing unusual. If you look at the guidance for Q1 '24 compared to Q4 '23, it aligns closely with the typical seasonal trends we observed before COVID, going back to 2020, 2019, and 2018. Our current business is consistent with historical patterns. On the D&E side, the impact of software sales in Q4 usually carries over into Q1. However, we are facing significant weather-related challenges in the Eastern Hemisphere and the North Sea that are affecting our D&E margins. Overall, our quarter-on-quarter guidance remains consistent with what we have seen historically in our business, and there is nothing out of the ordinary.

Our next question comes from Kurt Hallead with Benchmark.

There is a lot of information to process here, Jeff, and I appreciate all the details you provided. My question revolves around a couple of points, particularly the AI-driven dynamic you mentioned in the press release regarding your work with ADNOC. Could you elaborate on that in terms of how you are observing AI evolve as a useful tool for both your customers and your company? How do you perceive the adoption of this technology, and what financial impact do you anticipate it will have over the next few years?

Yes. Thanks, Kurt. Look, I think software and automation, and I say it that way because the software business is strong and focused on enterprise solutions, which will adopt all sort of AI and generative AI as we continue to move forward. That will create efficiency and improvement in a lot of ways for our customers. Internally, as we adopt automation and AI into our tools and service delivery, I expect that it will have a meaningful impact. Probably over the next 2, 3 to 5 years, just as those things are adopted, it's going to reduce service costs, it's going to drive demand, and it's also going to improve service quality, and I think will actually improve the capability of tools, which I think is so fundamental to how we generate long-term returns.

Appreciate that color. Also just that Halliburton Labs entered into a venture to some direct lithium extraction. So curious as to how you might see Halliburton involved in that process as well.

We're pleased to have one of our lab companies with us. We make a very small investment, around $100,000, in companies that join our labs, which represents a tiny piece of their Series B funding. We believe Halliburton Labs is increasingly attracting high-quality, investable companies over time. We see them moving into Series A and, in some cases, Series B rounds. It's a journey for us as we engage in various industries, but we proceed with caution. This is not corporate venture capital; we are not significantly investing in the companies that join Halliburton Labs, apart from a small 3% to 5% stake we typically receive for the services we provide as a member of Halliburton Labs. We're really excited about the direction this is heading, and we just need to allow it to develop independently. Yes. Thank you, Operator. Let me close the call with this: I'm excited about 2024. I mean our outlook for oilfield services is strong, and I expect Halliburton will generate significant free cash flow for shareholders in 2024. I look forward to speaking with you next quarter. Let's close out the call.

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