Lance Loeffler - VP, IR Dave Lesar - CEO Jeff Miller - President Mark McCollum - CFO.

David Anderson - Barclays Angie Sedita - UBS James West - Evercore ISI Jud Bailey - Wells Fargo Bill Herbert - Simmons Ole Slorer - Morgan Stanley Jim Wicklund - Credit Suisse Scott Gruber - Citigroup Sean Meakim - JP Morgan Kurt Hallead - RBC Capital.

Good day, ladies and gentlemen, and welcome to the Halliburton Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Lance Loeffler, Halliburton’s Vice President of Investor Relations. Sir, you may begin..

Good morning, and welcome to the Halliburton fourth quarter 2016 conference call. Today’s call is being webcast and a replay will be available on Halliburton’s website for seven days. Joining me today are Dave Lesar, CEO; Jeff Miller, President; and Mark McCollum, CFO.

Some of our comments today may include forward-looking statements, reflecting Halliburton’s views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements.

These risks are discussed in Halliburton’s Form 10-K for the year ended December 31, 2015, Form 10-Q for the quarter ended September 30, 2016, 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, and unless otherwise noted in our discussion, we will be excluding the impact of impairments and other charges and a class action lawsuit settlement.

Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter press release, which can be found on our website. Now, I’ll turn the call over to Dave..

Thank you, Lance and good morning to everyone. Never before in my nearly 40 years in and around the oil and gas industry have I seen a more difficult year for the industry. The down cycle in the 1980s was bad, but 2016 represented the sharpest and deepest industry decline in history. However, today, I’m really excited about what I see happening.

Now, we came through 2016 in pretty good shape. First, I want to highlight a few of our 2016 accomplishments. We finished the year with total Company revenue of nearly $16 billion and adjusted operating income of $690 million. And once again, we believe we outpaced our primary competitor in growing our market share.

We generated significant cash flow from operating activities during the second half of the year and increased our cash position for the full year. We successfully completed our structural cost initiatives and were able to cut more than a $1 billion in costs out of our business. Now for some fourth quarter highlights.

I believe, we had a fantastic quarter in executing our strategy. First and foremost, I am very pleased to announce that we returned to operating profitability in North America after three quarters of losing money.

We achieved incremental margins of 65% in North America, and we continue to clearly gain market share as we outgrew our primary competitor in not only North America, but Latin America and the Eastern Hemisphere. We gained significant market share throughout the downturn, coming out of it the highest market share in North America that we’ve ever had.

And in Q4, we utilized this increased share to drive margin improvement, and I’ll discuss that in a few minutes. In the Eastern Hemisphere, we maintained our margins quarter-over-quarter, despite continued stress on pricing and revenue activity.

We achieved over a $1 billion in cash flow from operations in Q4 alone, underlining our commitment to efficient working capital management. On a low light, as a result of the devaluation of the Egyptian pound, our $0.04 per share adjusted operating results did get hit by significant foreign exchange loss of $53 million or $0.06 per share.

Now, these results reflect successful execution in a tough environment and position us for the challenges and opportunities ahead. Now, let me take a few minutes to discuss what we’re seeing in the market today, and our prospects and challenges for the coming year.

Despite the positive sentiment surrounding North American land, it is important to remember that our world is still a tale of two cycles. While the North America market appears to have rounded the corner and is on the upswing, the international downswing is still playing out. Let’s talk about North America.

On the second quarter call, I told you that customer animal spirits were back in North America. Last quarter, I said that these animal spirits were alive, but somewhat caged up. Now, these animal spirits have broken free and they are running. However, not all customers are running in the same direction or as a pack, but they are running.

These animal spirits can be seen by the dramatic increase in customer M&A activity, energy industry initial and secondary company offerings, the significant private equity capital moving into resource plays and of course the increase in the rig count.

Customers are excited again, and our conversations have changed from being only about cost control to how we can meet their incremental demand. As things began to recover in Q3 and Q4, we made a conscious strategic choice to not chase additional market share and erode our profits further.

Therefore, our North American revenue did not grow at the same pace as the rig count for the last several quarters. The historically high level of market share we built in the downturn gives us what we call the power of choice in the recovery.

This is the ability to work with the most efficient customers who value what we do and who reward us for helping them make better wells. With this power of choice, we continued to execute our strategy of high grading the profitability of our portfolio with customers that value our services. Let me tell you how that strategy worked.

In Q1 and Q2 in a competitive pricing environment, we built the highest market share we ever had in North America, by demonstrating to our customers the benefits of our efficiency and technology and the ability to make better wells. We saw that historical high market share as an advantage and we wanted to utilize it.

In Q3, we told you that we were willing to strategically trade some of that historically high market share for better profitability. Clearly, the time had come to improve returns and that is what we told our customers.

In Q4, as demand for our equipment increased and availability tightened, our customer discussions revolved around the unsustainable pricing that was in place and the need for us to make a return before we were willing to continue to work for them or add new equipment.

If a customer agreed to better pricing, we continued to work for them, if not, we took that equipment and use it to fill the incremental demand with a customer that shared our view on how to work together and make better wells.

These conversations about the need for a healthy, profitable and viable service industry were sometimes hard, but they needed to happen. So in effect, we kept active equipment working at a higher price, while we believe our competition brought equipment into the market to fill that demand at a lower price point.

They gained share that we no longer wanted while tying up their equipment at a lower price point in an accelerated market. By executing the strategy, we intentionally gave up some market share in the short run, but we met our goal of returning to operating profitability in North America.

We did this because it’s important to keep in mind that above all, we are a returns focused Company. As we go into Q1, we continue to benefit from increased demand from customers and are now at the point where we are bringing back cold stacked equipment. This newly activated equipment is only being added at a rate that ensures it is profitable.

It should also stabilize our market share at above historical levels. This action is a meaningful step in the right direction to maintaining the leading market share while at the same time achieving industry leading returns. Bringing back equipment is not without a cost, and Jeff will talk about this in today’s pricing dynamics in a minute.

So, as I look at 2017 in North America, I really like how it’s shaping up. I expect as we finalize the execution of our strategy that revenue will meet or exceed rig count growth in 2017. However, we will have to contend with the cost of reactivating frac spreads and inflation on our inputs.

Keep in mind that our suppliers also expect to benefit from our customers’ animal spirits. So, let’s turn to the international markets. There pricing and activity levels remain under pressure as we near the bottom of the cycle.

Low commodity prices have stressed budgets and impacted economics across the deepwater and mature field markets, which has led to decreased activity and pricing throughout 2016. These headwinds still persist today. Now, there has been a lot of debate as to what commodity price will reactivate the higher cost basins, such as the deepwater complex.

It is clearly higher than the price that we are seeing today. Also impacting the price will be OPEC compliance with its new production guidance. Most people agree that the U.S. is now the world’s swing producer and it has demonstrated its ability to ramp up production quickly at a price that may make it difficult for deepwater projects to compete.

We believe that the race to get deepwater project cost down versus the impact on commodity prices on increasing U.S. shale production will have to play out over the course of 2017. Therefore, we do not expect to see an inflection in the international markets until the latter part of 2017.

In the meantime, our international customers remain focused on cash flow, and traditional contracting cycles will likely mute any dramatic rebound coming off the bottom. We expect revenue and margins to slowly grind down during 2017, as the market seeks to stabilize. Overall, our 2016 results show that we have executed in a challenging market.

Guided by the lessons learned from past industry cycles, our strategy focused not only on managing cost but also lining our resources to strengthen our market position, and I think we’ve done that. With that, let me turn the call over to Jeff and Mark to cover our operational and financial results.

Jeff?.

Thank you, Dave, and good morning, everyone. 2016 certainly was a whale of a tough year. I want to thank each of our employees for their hard work and commitment to execute at every turn and deliver Halliburton’s value proposition. We collaborate in engineered solutions to maximize asset value for our customers.

There has been a lot of change in North America over the last few months. Dave shared with you how we used our market share strategy to regain profitability. The next step in boosting profitability is increasing prices. So, let me start by talking about where we see pricing.

While rumors are circulating in the industry about huge price increases, that’s just not a universal fact. Given our position in North America, no one knows more about pricing than we do, and here is what I do know. First, I like talking about price increases more than decreases, it’s a nice change.

Second, the service price recovery is starting from an extremely low base, in many cases below variable cash costs. Third, the level of pricing that satisfies a particular service company depends on where they are on the profitability continuum.

Finally, even though the industry is starting in different profitability levels, every company will have to march back up the same path to profitability. Turning to downturn, our industry went through a steep regression in profitability as pricing and activity declined.

The industry moved from positive operating margins to negative operating margins and into negative EBITDA and ultimately round up struggling to cover variable cash costs. It was a fast and hard road that caused a dramatic shift in landscape of the service industry and wiped out a significant amount of shareholder equity.

The pricing brawl continues as the industry recovers and equipment availability tightens. Pricing at the margin is ultimately set by whoever is satisfied with the lowest returns. It’s important to understand that our competitors’ motivation from margin returns is largely built around where their pricing is anchored today.

For example, if they are at negative variable cost, then they’re trying to get to a negative EBITDA. If they’re at negative EBITDA, then they’re trying to get to negative margin and so on. I can tell you, despite what you hear in the market, it’s clearly a bridge too far to skip from negative variable cash to positive operating margin in one step.

So, the industry pricing regression I discussed earlier needs to become a pricing progression. This means that for now Halliburton will have to compete with companies that are satisfied with lower levels of short-term profitability. But, we don’t believe their pricing is sustainable. You can’t have negative margins forever.

In the meantime, Halliburton will continue to maintain our focus on execution and service quality as we defend our position without sacrificing price. I believe the superior service quality is a prerequisite to having a meaningful pricing discussion, and our dedication to service quality helps create the profitability results for the quarter.

As Dave said, we’re at the point in the cycle where we feel it’s appropriate to bring equipment back into the market. We have a disciplined approach which looks at the required combination of market demand, market share and profitable pricing.

Our stacked equipment was the best in the industry when it went on the fence and is the best in the industry as we bring it back. Our manufacturing and maintenance capabilities provide us many levers to pull from reactivating cold stacked equipment to building new.

This competitive advantage allows us to minimize the costs and time to deliver the necessary equipment to our customers. Our decision to bring equipment back is based on returns. However, there is an associated expense to activate cold stacked equipment. Industry estimates for reactivating spreads very-widely.

And while our efficiency and expertise allows to be on the lower end of the scale, it doesn’t make it free. Because we immediately spend some of the costs to reactivate the equipment, it will be a drag on our margins for a few quarters.

To give you a rule of thumb, we believe on average, it will cost a penny per share in the quarter we bringing back a given spread. After we absorb the impact of this additional expense, our margins should accelerate towards the end of the year. Now, turning to the international markets. Latin America had a solid quarter.

While the region continues to experience activity and pricing headwinds, we were able to finalize a number of items that have pending throughout the year for which we had deferred profit. We saw uptick in software sales [ph] in Venezuela and Mexico and improved activity in Colombia and Argentina.

At the same time, headwinds persist in the larger Latin American markets and until these are alleviated, we do not believe we will see improvement. However, we are committed to the region and believe that oil and gas is a critical element to the region’s broader economic recovery.

The Eastern Hemisphere was similarly strong in the fourth quarter, but pricing pressure and offshore exposure mean that we continue to expect some decline for these reasons in the near term. We expect to see an inflection in the rig count in the latter half of 2017, supported by strengthening activity in the land-based mature fields markets.

I’m more excited than I have ever been about how our approach to collaboration and maximizing asset value resonates with our customers and employees. We continue to focus on increasing barrels and decreasing cost for our clients. This focus is being rewarded in tender wins across the globe.

I could go on and on with examples, but I just want to highlight a few right now. In Oman, we’ve recently started work on $0.5 billion production enhancement contract, which will bring our superior technology and expertise to an exciting tight gas market. In India, we were rewarded a five-rig multiyear contract across several product service lines.

This win is a direct result of the team’s integrated approach and efficient solutions, designed to execute the work. It’s a great example of how we can collaborate both internally and whether customers to solve challenges and create results.

Landmark had a great quarter and year, our digital solutions including OpenEarth and iEnergy are gain wide acceptance, both our platforms for collaboration that cultivate data sharing, application building, and knowledge discovery.

Using our Exploration Insights platform, we started a strategic Basin Mastery project for a customer that will allow comparison of assets across their global portfolio. This will save the customer hundreds of hours of time and millions in financial investments. Reservoir Insight is a great example of how we can maximize our customers’ asset value.

These examples show our value proposition at work and highlight the successes we’ve had this year. In many ways, 2016 was like a barroom brawl where everyone and I mean everyone took a punch. It is 2017 now and a brawl will continue but I like our chances in that fight.

Why, because we are focused on adding capacity where it’s required, keeping a lid on fixed costs and doing the best job serving our customers. I really look forward to seeing the year unfold. Now, I’ll turn the call over to Mark for a financial update.

Mark?.

Thanks, Jeff. Let’s start with the summary of our adjusted fourth quarter results compared sequentially to the third quarter. Total Company revenue for the quarter was $4 billion and operating income was $276 million, representing a sequential increase of 5% and 115% respectively.

These results were primarily driven by increased activity in North America, the continued impact of our global cost savings initiatives and end of the year software and product sales. Moving to our regional results, North America revenue increased 9% with operating margins improving by approximately 550 basis points. The higher U.S.

land rig count drove increased equipment utilization, particularly in our drilling and evaluation product lines. We also saw the impact of our strategy to improve pricing and profitability in our pressure pumping business that Dave described earlier.

Latin America revenue increased by 3% and operating income nearly tripled, primarily driven by increased activity levels in Colombia and Argentina, and year-end software sales and consulting in Venezuela and Mexico. Turning to Europe, Africa CIS, we saw fourth quarter revenue decline by 9% with the decrease in operating income of 5%.

The decline for the quarter was primarily driven by weather related activity declines in the North Sea and Russia partially offset by improved activity in Egypt and Nigeria. In the Middle East, Asia region, revenue increased by 10% with an increase in operating income of 32%.

These results were primarily driven by increased software sales and project management services across the region. Our corporate expense totaled $67 million for the quarter and we anticipate that our corporate expenses will remain in that range for the first quarter of 2017.

Net interest expense for the quarter was $137 million, better than our guidance as a function of both higher cash balances and higher money market rates. We expect that this level of net interest expense will remain through the first quarter of 2017.

We reported $91 million of other expense for the quarter; this line item was impacted by foreign exchange losses in various countries, primarily due to the strengthening in U.S. dollar. The single largest factor included in our adjusted results was a $53 million or $0.06 per share non-tax deductable impact from the devaluation of the Egyptian pound.

Our ability to hedge our exposure to the Egyptian pound in front of this devaluation was limited due to the illiquid nature of the derivative market and the inordinate economic cost associated with entering into any available derivative contracts.

Our effective tax rate for the fourth quarter was approximately 34%; the quarterly rate is always a function of the tax rate you expect for the full year and 2016’s rate estimates have been particularly volatile because earnings were so slow.

This quarter’s rate was also affected by foreign tax assessment and a new deemed profit jurisdiction, the non-deductible exchange loss in Egypt and our earnings mix as the U.S. begins to recover. For the full year 2016, however, our effective tax rate was 24%.

And as we go forward in 2017, we’re expecting the full year effective tax rate to be approximately 25%.

During the fourth quarter, we also incurred impairments and other pretax charges of $169 million, approximately one-third of which was severance-related cost, primarily to headcount reductions in the Eastern Hemisphere and Latin America as we continue to right size our business to the current market.

We also recorded $54 million for the net impact of the previously announced settlement of a long-standing class action lawsuit. This amount was recorded in corporate and other in our GAAP results. Turning to cash flow, we generated $720 million of cash, improving our cash position at year-end of $4 billion.

This increase in cash was primarily due to working capital improvements and continued disciplined capital spending. We improved our days sales outstanding in the quarter by 10 days, while our days of inventory dropped by six days. We continue to believe that we’ve moved into a period of shorter duration cycles.

And given the amount of excess capital available in the market, we’re hesitant to build any additional tools or equipment unless that is new technology, built for a specific contract we’ve won or the expansion of market share.

Consistent with that strategy, we further reduced our capital expenditures as we exited the year, ending 2016 with the total CapEx spend of approximately $800 million. Our current guidance for 2017 capital expenditures is $1 billion.

This CapEx guidance includes reactivating cold stacked pressure pumping equipment and continued conversion of our hydraulic fracturing fleet to Q10 pumps to support our surface efficiency strategy. We also expect depreciation and amortization to be approximately $1.4 billion for 2017. Of our $4 billion in cash, approximately half is offshore.

We require about $1 billion to run the business. Given the strength of our cash position and the potential impact of U.S. tax reform, we’re actively evaluating our options and opportunities around uses of cash, which could include accelerating the maturity of debt, funding acquisitions and organic growth projects or shareholder return opportunities.

Now, turning to our near-term operational outlook, let me provide you some comments for the first quarter of 2017. Our international results will be subject to typical weather-related seasonality in the North Sea and Russia, and the roll-off of higher margin year-end software and product sales, which tends to hit Latin America more acutely.

This will be exacerbated by the cyclical headwinds that Dave described earlier. Although difficult to predict, at this point, we anticipate first quarter Eastern Hemisphere revenues to decline sequentially by a little under 10% with margins down several hundred basis points.

And in Latin America, we anticipate revenues to increase sequentially by mid to low single-digit percentages with margins retreating to the low single-digits. As we move into 2017 in North America, we anticipate subject to weather disruptions that our revenue growth will return to perform in line with U.S.

rig count, which is already up 14% against the fourth quarter average. Furthermore, we believe our margins will reflect incrementals of 40% to 45% as they absorb the impact of adding additional pressure pumping equipment to the market. There is one last comment I’d like to make in terms of financial reporting going forward.

Beginning in the first quarter of 2017, we’ll start reporting our four geographic regions showing revenue only and we’ll only report operating income by area, which is consistent with our major peer. Now, I’ll turn the call back over to Dave for closing comments.

Dave?.

So, let’s sum things up. To what it’s worth, we believe we were one of the winners in the 2016 downturn. Our 2016 results reflect our successful execution in a historically tough environment and provides us with the position of strength for the markets ahead.

The North America market share we built in the downturn provided us the power of choice and therefore the ability to drive returns. We strategically gave up market share in the short-run for the sake of regaining profitability, but we fully expect to get it back. We are bringing back cold stacked equipment to satisfy customer demand.

This equipment will meet our return hurdles and stabilize our market share above historical levels. Each spread, however, will cost us $0.01 per share in the quarter that we bring it back. The headwinds we faced in the international markets in 2016 still persist, and we do not expect to see a turn until latter part of the year.

As a result, we will continue to control our costs. And just like we were the winners in the downturn, I fully expect that we will win the recovery. Before we open it up for questions, I want to let you know that due to longstanding travel and business commitments, I will not be participating in our first quarter conference call.

Jeff will be providing market comments on my behalf. With that, let’s open it up for questions..

Thank you. [Operator Instructions] Our first question is from Angie Sedita with UBS. You may begin. Angie, your line is open, please check the mute button. Our next question is from David Anderson with Barclays. You may begin..

[Technical Difficulty] in terms of your utilization of your logistical network, you’ve mentioned bringing cost structure more variable, at the same time, I just wondered if you consider expanding any part of the chain at this stage?.

Hey, David, you came on -- we missed the first part of your question..

Okay. Sorry about that Dave. Yes, I was just asking about with increasing profit intensity in the market share gains you’ve talked about, just curious about where you’re in the utilization of your supply chain and kind of your logistical network as you build that out.

Can you kind of help us understand kind of where you think you are and whether or not you think you need to expand that?.

Yes. Thanks, Dave. This is Jeff. Look, the logistical infrastructure that we have continues to prove itself extremely valuable. And as the market tightens, it gets utilized even more.

We’ve got sand positions -- trans-load type positions in every market; we’ve invested in the logistics, which in my view is the most important part of that supply chain and that’s the part that gets the tightest the quickest. And so, we like where we are. We even completed some activities through the downturn in key markets.

So, we actually never backed away from that, and it will be valuable..

Thanks, Jeff. And Dave, maybe a bigger picture question here. I was just kind of curious your take on kind of what the E&Ps are saying now, somewhat publicly. It really continued to downplay or even dismiss the impact of service cost inflation, continue to be adamant the majority of these cost savings have been structural.

I was just kind of curious what your take is on this.

And if you were in their seat, would you be factoring 5% to 10% increase in cost in the budget or would you be using something higher at this stage?.

I would be using something higher, number one. Number two, clearly, some of the cost reductions are structural, but I think as the equipment tightens, commodity prices increase that everybody wants availability of equipment when they want it, where they want it and how they want it.

I don’t see that there is going to be the ability to -- for the customer to hold prices down. I mean it’s going to be a supply and demand market, it always is; we will work with those customers that want to work with us. And really, the model for us hasn’t changed. Efficiency is way more important than pricing.

And those customers that want to work with us to keep our equipment efficient are those that we’re going to work with. And I think that we’ll both be winners in that scenario..

Thank you. Our next question is from Angie Sedita with UBS. You may begin. Angie, your line is open. Please check your mute button..

So, this question is really for Dave or Jeff. I thought it was very noteworthy here that you’re reactivating fleets today.

And I’d appreciate more color on this decision as you actively way out pricing versus sharing your thought?.

Yes. Thanks, Angie. Look, I mean, the decision to add equipment is really around we see the market tightening. And in our view, the market share strategy works through the downturn, and as we bring equipment back, clearly it’s an economic decision; each time we put the equipment back to work, we expect to remain returns.

But we also want to maintain that power of choice which is very important to us as the market recovers. And so, as Dave just said, we really like our customer mix today, and we want to make certain that we can serve those customers. And we see that’s a key component of how we win the recovery..

And then, maybe you could talk about the potential or do you see or is there potential for any bottlenecks in the second half of 2017 at the logistics, sand or people, and is there possibility that could lead to an increase in the pace of pricing across the industry?.

Well, it’s always the same sort of three things. It’s equipment, sand and people that tend to crop up. I’ll take those one at a time though. From an equipment perspective, it’s as much speed the market as it is anything else. And we’re so happy with our manufacturing footprint in Duncan. So, differentially we have that advantage.

Sand, again, it’s not the sand volume I believe will be adequate but it’s the logistics. And again, from our perspective, we’re well-positioned there. We’ve maintained that infrastructure and then finally, people.

And we were fortunate to keep our experienced people to the degree that we could through the downturn that will pay back as we go into recover mode. And it is easy to forget, but in 2014, we actually hired 21,000 people onto our payroll. So, we have the ability to flex, and so all of those things are being managed today..

Thank you. Our next question is from James West with Evercore ISI. You may begin. .

Jeff, when you talk about the price -- the frac pricing in North America and your ability to raise pricing or to raise pricing with the customers you want to be working with, I guess a couple of things.

One is, is all the price increases that you’ve asked were so far sticking? And then two, if you are -- as you on stacked equipment, are you meeting your full return threshold or is this more of a let’s get in front of the market with some market share to get that return later?.

Well, James, the pricing is still the fight. I mean it’s not -- what we’ve seen so far is I’d say to start the utilization and efficiency largely got us to where we are, though clearly we have seen some pricing and that’s progress, but we are absolutely not where we want to be. And so, as we look at equipment, we expect better returns.

I think it’s important to note that at least in the last 90 days, we are at a place where more work is in fact helpful..

And then, maybe for Mark, just to clarify, I am coming up with on our math about $0.11 of negative currency adjustments for the quarter, so the quarter would be more like $0.15; obviously $0.06 of that from Egypt.

And are we correct on that that it all drops to the bottom line, so it would be more like a $0.15 quarter, or I guess you could call it $0.10, if you wanted to say Egypt is the outlier?.

You’re right to assume generally speaking currency losses, because they are essentially -- we are a dollar denominated Company, aren’t tax affected. It’s not at realizable loss in the countries that they recorded. So, that’s true that they’re not tax affected. However, I don’t know that I would jump to that conclusion.

Clearly, the Egyptian pound devaluation was something that was something that was sort of out of the norm. The pounds had been pegged to the dollar, and all of a sudden they decided not to be, it was an immediate 50% reduction in the currency. The other parts of the currency losses though, I would say, we experienced those quarter in and quarter out.

And I would say that for the most part, the rest of them are not unusual, depending our function of the strengthening dollar. But if you look back for the last several quarters, we’ve had them as they’re in the numbers and they were a part of how we had guided the Street as well.

So, I don’t know that I would necessarily exclude those as being necessarily unusual. And we’ll expect that they will continue as long as the dollar continues to be as strong as it is and continue to strengthen..

Okay. So, about $0.10. Got it. Okay, great. Thanks, guys..

Thank you. Our next question comes from Jud Bailey with Wells Fargo. You may begin..

I wanted to follow up on some of the commentary regarding the reactivation of pressure pumping spreads if I could.

Jeff or Dave, is there any way to give any color on maybe the magnitude of the reactivations that you are discussing with customers and for the ones you are contemplating, do you incur the costs, primarily in the first quarter or are you in talks about also reactivating equipment in the second quarter and so, does that drag from a cost standpoint continue in the second quarter as well?.

Jud, we’re not going to answer that; it’s just competitive and it’s a key part of our strategy in terms of how we go to market. I think the color we would give is that what we want to do is be in a position to work with those customers that value our services.

And we expect to see the flight to quality that’s pretty consistent in this part of the market. And for that reason, we put the time and the effort in to make it certain that our equipment is best in the business..

Okay, understood. I guess another question, even though you are seeing the headwinds from reactivation costs in 1Q, the first quarter guidance is for incrementals of 40% to 45%.

Just to make sure I am thinking about it the right way, as you get some of the reactivation headwinds behind you and of course see higher pricing, is it reasonable to anticipate later in the year for some quarters, we should see higher incrementals than that 45%, as you get pricing and the alleviation of the reactivation related headwinds out of the way?.

Jud, one of the things you need -- we talked about the cost being in Q1, but there will be cost in Q2 as well, because the ability to get all the fleets activated is going to take a little bit of time.

We’re not going to be activating all of the cold stacked equipment that we have, but there is some decisions around how much we’re going to make available in the market at this point in time and we’ll make later decisions.

And again, we talk about being very flexible in this kind of market, watching how the market behaves, but as Jeff said, we are going to get equipment ready to go; it’s going to cost us something and we’ll probably be doing that through the course of the end of Q2 and then sort of decide where the market is and where we are to address how much further we go..

Thank you. Our next question is from Bill Herbert with Simmons. You may begin..

Jeff, back to the pricing narrative here, I am a little bit confused.

On the one hand, you state explicitly in the narrative that the sequential improvement is driven by pricing and activity; secondly, your refusal to reactivate equipment without adequate rates of return and yet we’re processing non-trivial reactivations over the first half of this year.

So, by implication, pricing is improving, notwithstanding the fact that it might not be of the same magnitude that you’d want it to..

Correct. Bill, yes, seeing improvement; our visibility is improvement further into the future as opposed to the other way. And as a result, that’s the case for reactivating equipment.

We see places for that equipment to go and make it return, albeit not the returns we would like but certainly a return and getting us on the path to making those kinds of returns..

And, notwithstanding the fact that we had a margin strategy in the fourth quarter versus a market share strategy and thus the delta between revenues and rig count, I would suspect that over the course of 2017 and beyond, the fundamental completions intensity versus drilling intensity would probably put an upward bias on your revenue versus rig count.

And so at some point, over the course of 2017, the rate of revenue expansion should outstrip the rate of rig count expansion, correct?.

Yes. That’s a fair analysis. I agree with that..

And then last one from me, Mark. I know it’s hard to expound on this at this stage, because of the fluid nature of the subject. But, can you talk a little bit about Halliburton’s tax rate optionality in the event of the fact that the U.S.

corporate tax rate is bent lower?.

I don’t know that I can say much. I mean, I think that one of the things that we think about is in relationship to where cash is, and we our U.S. domiciled Company, it would have a dramatic impact on us, you see particularly during this period of time, when North America is beginning to expand, a drop in the U.S. tax rate would make a difference.

From a manufacturing perspective, most of our equipment is manufactured in the U.S., we actually have worked a strategy to move manufacturing around where it was geographically located to serve the markets where it was situated; and so all of that would be helpful.

This past year in 2016, if you recall, we have already taken the tax hit to basically, if a situation presented itself that we could bring our cash back to the U.S. in a tax advantage way, we could do that without a significant impact on our results. We watch that very carefully.

But we have -- I guess, what I’m telling you is we have tremendous optionality. I think what we’re just going to pay attention to is how is that going to move forward. We’re going to be working with Congress and the Hill.

Our tax Senior VP will be going to the Hill in a couple of weeks, and we’ll just -- we’ll continue to try stay tied8 into where things will be moving and to move as quickly as we can to take advantage of whatever present itself..

Thank you. Our next question comes from Ole Slorer from Morgan Stanley. You may begin..

I was quite impressed with the international margins, and you highlighted of course year-end software and product sales, like we always see.

But, could you be a little bit more specific on the margin development into the first quarter as well as the revenue numbers that you guided?.

Well, maybe, when you say more specific, I mean, I think we tried to give guidance by area, right? I think North America revenue should be in line with the rig count; our incrementals should be in that 40% to 45% range.

When you look outside of North America, our Eastern Hemisphere which probably benefited more from some of the product -- year-end product sales but also gets hit more by weather-related seasonality; in the Q1, we expect that the revenues will be down a little under 10%, high single-digits.

The margins, the impact -- the margins did look great; they’re very strong because of the product sales; they should drop off a couple of hundred basis points in the first quarter.

And then, Latin America, even though we had strong software sales of consulting which impacted, and those come at very, very high incremental, we actually think revenues will be up a little bit, but that it will have a marginal impact and they’ll still fall back down to low single-digits..

Sorry.

And margins in Latin America?.

Margins will fall back into the low single digits..

Low single digits, okay. Yes, I thought that’s the revenue. Okay. And second question would just be on the North American reactivation of pressure pumping.

At what point do you believe that you have to add new capacity rather than cold-stacked and relatively intact capacity?.

Yes. Look, that’s decisions we’ll make as we work through the process and certainly not something we’re going to share today, just from a competitive perspective. But, we do believe that we like where we are now and we like the plan we have in place..

Thank you. Our next question is from Jim Wicklund with Credit Suisse. You may begin..

Good morning, guys. And when you all complain about getting too much pricing or note that you’ve gotten enough pricing, that’s the day the world ends.

The comments about reactivation costing a penny, was that a penny per spread that you reactivate? Because if I do just math on a 35% tax rate, that’s $10 million to $12 million reactivation cost per spread.

Am I doing the math correctly, guys?.

You’re doing the math correctly..

Yes. Maybe, it’s worth a little color on what that is. And so, as we think about penny per spread, we see estimates are all over the place. I actually believe we’re at the lower end of the range in a sense that it is equipment repair but it’s also advanced hiring, it’s logistics that go with each spreads.

So, that’s sort of a fully loaded look at reactivation. And we expect to have the best equipment in the marketplace. So, we certainly put the time into that..

Okay. That clarification is helpful. And if I could on the international side, you guys note that the international inflection is probably going to be later in 2017. And, Jeff, I think you said it was onshore that you expected to move up first in mature fields.

Where do you guys see sub-Saharan Africa and offshore Brazil, when do we start to see an improvement in deepwater?.

Well, I think that’s the toughest hand in terms of efficiency. And I would say at this point in time, the commodity price just had to stabilize at a high enough number that makes it as attractive. And I’m just looking at recent headlines but a lot of investment moving to North America; unconventionals that -- where that money had choices.

So, I also think that from an inflection timing perspective, the lead time between investment decision drilling activity is long in those markets for a lot of reasons; and every day that we see delay that gets pushed out yet even further.

So, we like our position in both of those places and we’ll be ready when it does recover, but I really don’t -- we think it’s further out than -- further out..

Yes. Jim, let me give you an anecdote. I was talking to the CEO of one of our IOC customers Friday, obviously not going to say who it was. And he said that there was not a single asset in their portfolio outside the U.S. that competes with their U.S. opportunities right now.

And to me that’s a pretty amazing statement to me in terms of really how much further commodity prices have to go up to bring some of these more either highly complicated or longer duration projects to the front of the queue get an FID decision made around them..

Thank you. Our next question comes from Scott Gruber with Citigroup. Your may begin..

Just a quick question on the reactivation cost, a penny per quarter per spread.

Is that quarterly impact including both, OpEx and CapEx framed relative to your earnings power or is that actually what hits the P&L during the quarter?.

Yes. So, it’s not a penny per quarter per spread, it’s just a penny per spread, and it is just the operating expense impact to cost. As Jeff indicated, it’s more of just the maintenance on the quarter itself; it’s also the recruiting cost and the other activation cost that we are incurring to get that spread ready to go.

It does not include the capital cost. And so, as I articulated, our capital forecast for 2017 is right now as I said about $1 billion.

And that incremental that we’re looking at between 2016 and 2017 is a fairly good estimate of some of the activation costs that will be incurred on the capital side to get some of that equipment ready to go, including retrofitting some of our old equipment with Q10s as we get them ready to get back in the market..

I think here is a simple way to think about it. We bring a spread back this quarter, the negative impact on our earnings is $0.01; in the second quarter that spread starts to earn revenue and will give us the incremental margins and incremental revenue for that spread. So the penny is a one quarter impact.

But clearly, we will be likely to be bringing some spreads back in Q2. So, the impact of those spreads in Q2 will be a penny per share, which is why I made the comment earlier that it’s really going to be toward the end of the year.

Once we’ve absorbed the frontend cost of these spreads coming on where we really expect to see our stimulation and pumping margins pop-up..

And then a question on sand delivery.

Jeff, have you seen any degradation to the percentage of jobs that you are supplying sand for in the marketplace?.

No, not necessarily. We continue to deliver sand and most of the jobs where we work that’s -- assurity of supply such an important piece of our own efficiency model that we make certain that we control those variables when we go to work and we found it to be very effective..

And so, today, when you talk about putting fleets back to work at a profit, one, is that an operating profit; and two, does it include the logistics cost and investment?.

Yes. I mean that’s -- when we think about making an economic decision about putting a spread to work and making returns, it’s a fully loaded operating income returns for the Company..

Thank you. Our next question comes from Sean Meakim with JP Morgan. You may begin..

I was hoping to elaborate on the logistical challenges we discussed earlier, specifically from the E&P perspective.

Are there any pinch points to focus on beyond labor and proppant that could create some challenges, as we move up the cycle here; just I am thinking about things like water and electricity? Some of these emerging plays like the Delaware, it seems like that could be an issue for E&Ps and just curious how you are partnering with your customers try to work through those issues..

Look, I mean, essential to our value proposition is how we collaborate engineered solutions to maximize asset value and a key component of that is collaboration around all of those things that help our customers be successful.

I don’t see those necessarily as issues that can’t be overcome by any means, water and electricity or things that our customers are very good at managing. And so, I think we’ll find solutions to those..

And then, just a follow-up on the reactivations, could you give us a sense of the mix today for Q10s and maybe how that could progress through this year, given the CapEx budget that you laid out?.

So, about 60% of our overall fleet that’s out there today that’s Q10s. So, as we reactivate crews coming in, we are going to be placing an emphasis on Q10 fleets including that we talked about retrofitting some old equipment, they need pump replacement, we are going to retrofit with Q10 pumps on that equipment.

And so, our hope is that as this new equipment comes out, it will continue to increase the total percentage of Q10 fleets in the market..

Yes. We continue to be very pleased with the performance of the Q10 technology. I think it’s delivering the efficiency and the differential, capital efficiency that we’d expected when we brought those out. So, we are certainly incentivized to make those the growing part of our fleet. .

Thank you. Our next question comes from Kurt Hallead with RBC Capital. You may begin..

A question for Dave; you bring up some very interesting points in your earlier commentary; and given your history now in the business and through the cycles, I was wondering if you can share your perspectives on the number of different companies in the frac space that are going to be coming public.

On one hand, you can probably make an argument that it’s positive because at the end of the day when you go public, you’ve got to be as profitable as you can be, but on the other hand as you go public, I’m sure shareholders are going to expect some sort of growth, which means more capital being deployed into the business and this excess capacity factor may be dampening the prospect for profit improvement.

So, I am curious as to your perspective on that, Dave.

How are you guys thinking about it and what’d be a good way for people like us outside the industry to think about that?.

I think I guess the way I think about it is in a couple of ways. One is, you’ve got some sort of brand names and I won’t say who, who are actually exiting the pressure pumping business.

So, they have looked at the space and have decided that they don’t want to be in it for now or don’t want to be in it at all, while at the same time, you clearly have a wave of companies that are really just pumping companies only coming into the public market. And you absolutely put your finger on it.

I think by being public, there is an expectation that you have profit and that you get paid for growth.

And so, what they hear from their shareholders, and I suspect to some extent, most of their shareholders are on this call listening, and it really is going to be the message that they get from those shareholders as to what’s more important, growth or profitability.

In our case, because of our position, we think we can have it both; we’re not a afraid of competition; we’ve had a lot of competition come into the market over the past many years. We like our position there; we like our customers that we have.

So, at the end of the day, we’ll compete with whatever is out there with whatever message their shareholders are getting. But at the end of the day, it’s about providing a good service to a customer at the right price. And I absolutely love where we’re positioned, if that’s going to be the state of play, and it is..

And follow-up, maybe for you Dave too; your comment before was pretty intriguing about your conversation with an IOC executive and how they are thinking about their portfolio.

Would you say that that is -- could you kind of extrapolate that and say that the vast majority of the IOCs that you talk to have that same mindset? And I would just try to put it into a context that the largest IOC in the world placed a $6.5 billion bet on the Permian, last week.

So, I think that does speak a lot for their view of where their opportunity set is.

So, any incremental perspectives on that?.

No, I think each company is different; their portfolio is different; when they acquire those assets are different; how long their production sharing contracts in many cases have to go. So, I wouldn’t generalize the comment to the broader industry. I just thought it was in an interesting anecdotal point from a particular customer.

But, you’re absolutely right, even the largest of the IOCs clearly have a focus on the unconventional in the U.S. And I think that bodes well, not only for our position in North America, but the future of the industry here..

Thank you. At this time, I would like to turn the call back to Jeff Miller for closing remarks..

Yes. Thank you, Shannon. So, before we finish, I’d like to emphasize two points. First, our strategy to collaborate and engineer solutions to maximize asset value, meaning deliver the lowest costs per BOE is built on Halliburton’s competitive advantage and is well aligned with our customers and is winning contracts and follow-on work.

Second, our focus on fairway customers who best utilize our approach to delivering the lowest cost per BOE and our ability to flex quickly with the market, place Halliburton in a fantastic position to win the recovery. We’ll look forward to talking with you next quarter. Shannon, you may now close out the call..

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