Lance Loeffler - Halliburton Co. Jeffrey Allen Miller - Halliburton Co. Robb L. Voyles - Halliburton Co..

David Anderson - Barclays Capital, Inc. James Wicklund - Credit Suisse Securities (USA) LLC James West - Evercore ISI William A. Herbert - Simmons & Company International Scott A. Gruber - Citigroup Global Markets, Inc. (Broker) Angeline M. Sedita - UBS Investment Bank Judson E. Bailey - Wells Fargo Securities LLC Ole H. Slorer - Morgan Stanley & Co.

LLC Sean C. Meakim - JPMorgan Securities LLC.

Good day, ladies and gentlemen, and welcome to the Halliburton first quarter 2017 earnings call. At this time, all participants are a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Lance Loeffler, Vice President of Investor Relations. Please go ahead..

North America; Latin America; Europe/Africa/CIS; and Middle East/Asia. 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, 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 today, we will be excluding the impact of certain items which consists of impairments and other charges, a class-action lawsuit settlement, and loss on debt extinguishment.

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

determining where and how we add equipment at leading-edge pricing; chasing price up, not down; evaluating, winding up, and repairing pricing on older contracts, this is happening every day; aligning with customers that are racing to meet production targets or will work with us to maximize our collective efficiency; managing our input costs; and finally, a relentless focus on reducing internal costs and implementing technology.

Outside of North America, our more conservative outlook for the last several quarters is proving accurate. Our customers around the world have different breakeven thresholds and production requirements, but none are immune to the impacts of the current commodity price environment.

We continue to see customers defer new projects, most notably in the offshore exploration markets. Now due to lower cash flow and project economics, they are more focused than ever on lowering costs. The result of this combination is less activity and more pricing pressure.

Now I believe the first quarter represents the bottom in the Eastern Hemisphere rig count. The full-year average for 2017 will likely only be marginally higher than the full-year average for 2016.

Further, due to the long-term contractual nature of international markets and the level of continuing price pressure, I expect discounts will offset activity gains over the near term. In Latin America, we saw sequential improvement in revenue from activity in Brazil and Mexico in the first quarter.

Now while we're seeing an improvement in certain basins, there are a variety of country-specific headwinds that must be overcome for a meaningful recovery in the region.

In contrast to North America, where we believe that a $50 oil price would drive a significant increase in activity, customers tell me that longer duration international markets will react less to an absolute oil price but more to a positive view of where price will be for several years.

This isn't a surprise given the longer investment cycle that many of our customers face. To sum it up, in North America the momentum is building, and we only see it getting better. And we believe we've seen the bottom in the international market. Now I'll turn the call to Robb to cover our financial results..

Thanks, Jeff. Good morning. Let's start with a summary of our first quarter results compared sequentially to our fourth quarter results. Total company revenue for the quarter was $4.3 billion, representing an increase of 6%, while operating income was $203 million.

These results were primarily driven by increased activity in our North America land business, offset by the typical seasonal impact in the international markets that were exacerbated by the cyclical headwinds that Jeff described earlier. Now let me compare our divisional results to the fourth quarter of 2016.

In our Completion and Production division, first quarter revenue increased by 15% while operating income increased 73%. These results were primarily driven by improved pressure pumping pricing and utilization in our U.S. land business, offset by a seasonal decline in completion tool sales across the Eastern Hemisphere and the Gulf of Mexico.

Turning to our Drilling and Evaluation division, revenue and operating income declined by 4% and 51% respectively, primarily as a result of reduced software sales as well as lower pricing and decreased fluid sales across the Middle East-Asia region. Let me take a minute to compare our geographic results.

In North America, revenue increased 24% sequentially, primarily driven by increased pricing and activity in our pressure pumping and well construction product service lines.

In Latin America, we saw revenue increase by 8%, primarily due to increased activity in well completion, fluid services, and production solutions in Brazil, as well as pressure pumping, fluid services, and project management in Mexico.

Turning to Europe-Africa-CIS, revenue declined 11%, resulting primarily from reduced activity in West Africa and weather-related activity reductions in the North Sea and Russia.

For Middle East-Asia, revenue declined 12% as a result of reduced pricing and activity across the region, particularly completion tool sales, project management, and drilling services.

Our Corporate and Other expense totaled $66 million in the first quarter, and we anticipate that our corporate expenses will be a similar amount for the second quarter of 2017. In March 2017, we redeemed $1.4 billion of our senior notes with cash on hand.

As a result, we recorded a pre-tax loss of $104 million on the early extinguishment of debt, which included the redemption premium and a write-off of the remaining original debt issuance costs and debt discount, partially offset by a gain from the termination of related interest rate swap agreements.

This loss on the early debt extinguishment is included in the $242 million of interest expense for the first quarter. As a function of our reduced debt balance, we expect net interest expense for the second quarter to be approximately $120 million, a savings of close to $20 million. This savings will continue in future quarters.

We reported $18 million of other expenses for the quarter. This was lower than we anticipated due to lower volatility associated with foreign exchange movements during the first quarter. Our effective tax rate for the first quarter came in slightly higher than expected at approximately 27%, due to a shift in the geographic mix of our earnings.

For the remainder of 2017, we are expecting the effective tax rate to be approximately 29% to 30%. Cash flow from operations during the first quarter was approximately $5 million, which represents $340 million of cash flow from operations, excluding the final Macondo payment.

And we ended the quarter with approximately $2.1 billion in cash and equivalents. As we progress through 2017, we believe we are well-positioned to generate significantly more cash from operations. Turning now to our near-term operational outlook.

Market dynamics continue to make forecasting a challenge, but let me provide you with some comments on how we believe the second quarter is shaping up.

For our Drilling and Evaluation division, we are anticipating a second quarter rebound from typical seasonal weather disruptions in drilling activity, such that sequential revenue will experience a mid-single-digit increase compared to first quarter levels, with margins increasing 75 basis points to 125 basis points.

In our Completion and Production division, we believe that revenues will increase in the upper teens, while margins will increase by 275 basis points to 325 basis points. As for our regional outlook, as in the first quarter, we expect our revenue growth in North America to outperform the average U.S.

land rig count growth, which is already up significantly for the second quarter. In Latin America, we anticipate revenues will increase sequentially by mid-single digits. We expect Europe/Africa/CIS revenues to increase by low-double digits as a result of increased activity after the winter months.

And we believe Middle East/Asia revenue will remain relatively flat sequentially. Now, I'll turn the call back over to Jeff for a technology review and a few closing comments.

Jeff?.

first, it meets the customer requirement; and then, second, it provides a return to Halliburton. We look for technology and equipment that differentiates us from our competitors, helps our customers, and drives our returns. If it doesn't, we'd rather rent it than own it or partner with an expert in that field.

We believe differentiated technology and ability to integrate technology using an open-architecture approach is what sets us apart from our competitors, helps our customers, and drives returns. Through the downturn, we've been very active, deepening those investments and relationships that we believe offer the best full-cycle returns.

Our competitive technology position is demonstrated by our onshore market leadership in North America and our contract awards and share gains in what are historically some of the most technology-driven markets, such as deepwater exploration with openhole wireline and testing; deepwater Gulf of Mexico, where Halliburton now enjoys an overall market leadership position; and, finally, in the Middle East, where we have a market leadership position in project management.

The feedback from our customers has been overwhelming. We're aligned with what's most important to them, maximizing asset value, and doing so with our proven commitment to execution service quality and technology.

Now, because we provided an operational update a month ago, we have a few spare minutes today to cover topics we don't normally have time to discuss. I hear a lot of discussion in the industry today about digital initiatives, for example, big data, analytics, Internet of Things, and automation. And I'd like to share my views on the subject.

Let's start with the underlying concept. Our industry challenges remain the same, but today, we have an opportunity to solve problems in a fundamentally different way, enabled by the development of reliable, inexpensive sensors, data processing capabilities in the cloud, and advances in machine learning techniques.

Now, digital technologies are valuable, only when they solve a problem. The value is created by the combination of domain expertise with digital technologies. Arguably, the most popular talking point is big data. Now, big data standing alone is nothing but big data collection. It's really only valuable when used for automation and optimization.

To me, the big data story is still being written. We collect different E&P data types, and because Landmark's DecisionSpace is the go-to platform for the industry, we power the collection and storage of big data more so than anyone else.

Our customers use DecisionSpace to collect, monitor, analyze, and sometimes control their assets through the life of the field. Each customer is unique and will have specific goals. The open-architecture platform we provide allows customization and enables customers to use their domain expertise to its fullest advantage.

Let me give you some other examples of what digital looks like at Halliburton, starting with the direct application of these innovations to help customers lower their cost per BOE.

In the production space, we're a leader in smart fields, with Voice of the Oilfield, where digital technologies are combined with subsurface understanding to optimize production. In the Eastern Hemisphere, we have completed the first phase of the smart field project in heavy oil.

The project included modeling, automated workflows, and optimizing production and injection networks. This is made possible by the incorporation of new data sources into an analytical framework. This allowed our customer to have a constant view of their facilities, reservoir, and operations to monitor and optimize production in real-time.

This project has substantially reduced the cost of production, and the process is now being implemented on a series of fields with over 1,000 wells. We have similar projects ongoing with major operators in deepwater as well as unconventionals. In hydraulic fracturing, we continue to innovate and push the envelope by automating the fracturing process.

This is accomplished by acquiring data from frac treatments in real-time and applying machine learning to make decisions previously taken by on-site personnel, such as rate or pressure adjustments, and volume, and timing the release of materials. As a result, we've seen dramatic improvements in fracture efficiencies in the field.

We have similar efforts ongoing in our Drilling and Completion arenas, which I'm excited about and will share details about at a later date. Internally, we are far along in rolling out various digital initiatives.

For example, in the area of condition-based maintenance, over 90% of our pumps are equipped with IntelliScan, advanced sensors and algorithms to measure and monitor pump health in real-time. In summary, our industry is in the very early stages of defining the digital story.

We believe an open digital architecture is a prerequisite for our industry to enable faster innovation and collaboration with our customers. This is why we've invested in and standardized on the industry's only open-standards-based platform, DecisionSpace.

We're excited to open up access to this platform code through OpenEarth, a community of E&P scientists and developers, to speed up and lower the cost of digital innovation for the entire industry. In closing, there are a few things that I want to highlight. We are the execution company, and I'm excited by the activity I see in North America.

We outperformed the U.S. land rig count in North America and expect to do so again in the second quarter. As we stated on our operational update, we've nearly doubled our reactivated equipment additions for the full year and are bringing that equipment out in the first six months of the year.

Our conservative international view is playing out, and I am confident in our ability to handle the challenges in these markets. We are focused on achieving industry-leading returns, and I believe we have the best strategy to achieve that. Now let's open it up for questions..

And our first question comes from David Anderson of Barclays. Your line is now open..

Great and thanks. Good morning, Jeff..

Good morning, Dave..

So I was just wondering. So with a strong catch-up in completion activity that you saw on U.S. land this quarter, is it fair to say you think we're entering a new completion-intensive phase of this cycle? And I was hoping you could talk a little bit about how you see that relationship between rigs and completion activity now.

You had previously talked about 900 being the new 2,000 in terms of full industry utilization. I was just wondering if you could go into that math a little bit and see if that's adjusted at all..

Thanks, Dave. There's no doubt that the pace of completions activity is catching up with the rig count, and we expect to see that relationship continue into next quarter most certainly. And it is partly around – the increasing intensity continues to build.

And when I said 900 was the new 2,000, I probably overshot that number in a sense that we are seeing that kind of tightness in the marketplace today..

And as a related, as we're talking about preserving market share that you've talked about and reactivating it, clearly you did this. I've seen some of this capacity from smaller competitors out there. There are two questions around that.

I guess one, what do you think are the biggest impediments for the industry bringing this back? Do you think there's going to be shortages of repair? Is it finding and training crews? Is it something else? And secondarily, you had talked in your prepared remarks about a flight to quality. I was just wondering if we're starting to see that yet.

Are customers starting to experience the poor jobs or equipment delivery delays, or is that a little bit further out?.

Look, the flight to quality is happening, and that is what we see when equipment comes into the market. And most importantly, as clients get urgent, reliability, service quality, and technology even matter more. And so we are confident that that pivot to what we deliver will continue through the marketplace.

As far as things that are tight, equipment broadly is tight I think for the industry today. Sand is one of those things that will recover in terms of availability. There's a lot of capacity coming into the market. And then from a people perspective, we're confident with where we are on people.

And it is partly because we retained our folks, our most experienced people through the downturn, and we know how to hire folks. We hired 21,000 in 2014..

Great. Thanks, Jeff..

Thank you. And our next question comes from Jim Wicklund of Credit Suisse. Your line is now open..

Good morning, guys..

Good morning, Jim..

Good morning, Jim..

I actually heard an advertisement on the radio the other day here in Dallas for a Halliburton job fair in Abilene. So that's the first time I've heard that, so I guess your hiring efforts are going farther afield than Midland..

Yes..

The Gulf of Mexico, my sources are telling me, Jeff, that you guys have just won some work from Chevron and Shell in the Gulf of Mexico that previously had been held by a competitor. And you guys are a little bit smaller in the Gulf of Mexico than your nearest competitor.

And I was wondering if you could tell us if this is true, who it is, and how did you do it?.

I'm not going to tell you about customers, but I think we know what the customer set is in the Gulf of Mexico. Yes, we've been quite successful in the Gulf of Mexico, and it's really built around our strategy, Jim.

It's collaborating and engineering solutions to maximize asset value for our customers, so we're clearly focused on the things that are important to them. And the other thing I think it tells you is that our technology portfolio is extremely competitive.

And I think we've demonstrated that by what we're doing in deepwater in the Gulf of Mexico and in other places..

Okay. And if I could follow up on the U.S., you guys said in your operational update that you're definitely accelerating pressure pumping capacity. Would it be fair to say that in Q3, you'd probably have about twice as much pressure pumping capacity in the field than you had on January 1? And I know that new contracts are getting a big price hike.

I think you all confirmed something close to 25% for Q1.

Would all the equipment you have in the field be benefiting from that higher price by say Q3?.

Jim, I think the amount of equipment that we're adding is not nearly as much as you're suggesting. But what I will tell you is that we are working constantly on the broader portfolio. And without giving you a time, we actually have seen quite a bit of progress on that since the beginning of the year.

I can't predict precisely what that timing is, but the right things are happening. And I'd say that in the sense of customer urgency, we're seeing that supply and demand tightness. And the bottom line is we really like the way the market's shaping up. I think we're on that path..

I guess what I'm really asking though is that, I know that new fleets are going to work at a nice price hike from where we were, say, exiting Q4, but the equipment that you already had in the field in Q4, how long does it take before the new prices for new equipment, how long before that price hike hits all the legacy activity and equipment you already have in the field, how long should that take to flow through?.

Again, that should happen over the next, I would say, four quarters, somewhere in that range depending on pace and efficiency of customers. But it's something that gets done in due course as contracts roll over, or we move things around. So we kind of control the when, and the where, and the how. We work on that every day, Jim..

Is this new equipment going to work on contract, or just more like commitment?.

Jim, everyone would like to commit equipment at this point in the marketplace. I think we're being very thoughtful about where we place equipment. We are aligned with the right customers, we believe, in the right markets. But we also move equipment around, and that's part of where we see the flight to quality happen as we move equipment around..

Okay. Thanks, guys. I appreciate it..

Thank you. And our next question comes from James West of Evercore ISI. Your line is now open..

Hey, good morning, guys..

Good morning..

Good morning..

Jeff, as you think about the second half of the year in North America, given all the equipment you've put back to work and the pricing power that you're achieving now, what do you see as the momentum of North American margins going forward? I know we don't want to get too far ahead of ourselves here, but incremental margins were, as you have talked about previously, light this quarter, but they should, in my mind, at least explode in the back half.

Is that a fair assessment? I mean, when you're running your models and you're thinking about your earnings power here for North America, what do you see?.

Jim, this is Robb. I'm not sure about what you would characterize explosion, but....

Fair enough, Robb..

...this is a transition quarter for us in terms of how we're reporting our operating income in areas.

But given that it is a transition, and given the way North America's rapidly expanding, what I can say is that margins improved throughout the quarter, and that our exit incrementals for North America approximated what we'd anticipated for the whole quarter.

We really like the momentum that we see going into the second quarter, and we fully anticipate that momentum to continue throughout the year..

Okay, okay. That's helpful, Robb. Thanks. And Robb and Jeff, I saw you guys about what, five, six weeks ago or so and at that time, we were starting to talk about new build capacity. And Jeff, I believe, that you had indicated that you would probably make that call as we got closer to kind of mid-year.

I suspect you and Robb, too, probably have Jim Brown in your office every day asking for CapEx and trying to build new equipment.

So how are you thinking about that right now? And how are you thinking about when you make that decision to start adding incremental capacity, think about new builds to the market?.

Well, fortunately, Jim Brown lives in Denver, and he can't be in our office..

Sorry calling you, yeah..

Well, we also have the call ID, so we don't always answer the phone. But I think what we were trying to make clear in our prepared remarks is that we have not made that decision yet. We're constantly monitoring the situation, looking closely at capacity in the marketplace, our customer relationships and what their demands are.

Bottom line is we're not going to be bringing new build equipment into the market unless and until we see the kind of margins that we want to achieve, and that's normalized margins and a good return on that equipment. We're fortunate, as you know, in that we manufacture our own equipment.

And so we've got a lot of optionality in that area, and we can react rapidly when we need to. But at this point, we're comfortable with where we are, and we've not made any decisions on new builds..

Okay, fair enough. All right, thanks, Robb..

Sure..

Thank you. And our next question comes from Bill Herbert of Simmons. Your line is now open..

Thanks. Good morning. So on the guidance, it looks like the incremental for the second quarter for CPS is in the vicinity of like 25%.

And I'm just curious as to when you conducted your call of a few weeks back on the operational update, Dave talked about aspirational North America margins over the course of the next several quarters and then a couple of years in the 20% arena.

And in order to do that, we had to land kind of a sort of glide path of 40% to 45% sequential incrementals for several quarters. And I'm just curious, with regard to CPS, I think you guys had an 18% incremental Q1, a guided 25% incremental for Q2.

And relative to that aspired 40% to 45% North American incremental, what do CPS incrementals have to be in order to land that 20% North America margin?.

Bill, I think the outlook we gave on the operational update is accurate. But without a precise number, what we need to do is continue to put the equipment to work that we have in the marketplace.

And I expect that we will be on a glide path that will materialize over the balance of the year that take us to what those normalized margins are and should be seeing that reflected as we, again, move through the second half of the year and into next year..

Okay. And just my takeaway from the call a few weeks back is that what was burdening your incrementals was a combination of insufficient net pricing traction, one; second, ramp-up and reactivation friction; and third, supply chain cost inflation.

And I'm just curious as if you could talk briefly about each of those with regard to how we're evolving, and sort of progressing, and transcending those challenges, and what we can expect..

So with respect to bringing equipment back out, I mean, we laid out the path to these assets through sort of mid-year. And at that point, that burden is behind us.

With respect to supply chain, and we were working on that every single day, that in many ways, the short-term supply shortages that were at least generated by year-end activity should begin to abate as we move through Q2. This is sand shortages. And so those are the most prominent couple of items that come under control as we move through the year..

And with regard to net pricing traction, I think, an earlier questioner said 25% on new equipment rolling out.

Is that correct? And what kind of pricing traction are you getting with regard to equipment in the field currently working?.

Yes. I mean, there's great momentum. So we talked about moving up at the leading edge, but we're seeing pricing improvement in every basin where we work around North America. And as I said, on the legacy portfolio, it is getting traction. And as we work that every day, again, it is making progress.

And we expect that, that momentum continues as we work through the year..

Okay, thanks..

Thank you. And our next question comes from Scott Gruber of Citigroup. Your line is now open..

Good morning..

Good morning..

Good morning, Scott..

I want to follow on from Bill's question.

I think we all understand that margins should improve nicely in the second half of the year as these restart costs fade, but do you need additional pricing to reach those 20% plus normalized margins in North America, or can you get there through the repricing of active spreads and reaching full utilization? I realize you're not going to be reporting geomarket margins anymore, but conceptually, color on this point, I think would help us all forecast..

Yes, so we would expect to continue to make pricing gains. But with that said, there are a lot of other levers that we have once we start to move the full portfolio up on pricing, and that's where we start to get into the customer urgency that we're seeing, which then leads to hyper-utilization.

As the excess capacity comes out of the marketplace, we get a lot more control over the calendar, some would call that calendar power, and we don't have all of that today. But I think all of those things conspire to a path to normalized margins that is somewhat dependent on price to the degree it repairs the portfolio.

But if we think back to 2014, as we were moving up that chain, we nearly never got to what I would call the pricing power piece of that, but it was more around utilization..

Got it.

So just to be clear, you would need some incremental pricing above and beyond leading edge to get to those normalized margins? Is that fair?.

Yeah, I mean, some at leading edge but, more importantly, repairing the broader portfolio..

Got it. And just a follow-up on strategy. We heard from your largest competitor on Friday regarding their strategy to enter various aspects of the value chain in North America.

Can you provide an update regarding your strategy toward investing across the value chain and broader integration in North America? Has anything changed as some of the different links in that chain start to tighten?.

No. I mean, we want to invest in those things where we believe we add unique value to them, so clearly, that's our equipment, and the kind of technology we can roll out to make that more efficient.

As we look up and down the value chain, we try to be fairly surgical about those things that we think we need to own, one of those being the logistics piece of that, just because it's quite portable, actually, in terms of where sand is at any point in time.

We don't have that experience, but our view of owning the actual commodity is that sand is rarely in the right place or is at the right mesh size. Those tastes change over time, and so that's not a place where we want to put a lot of capital..

Got it, appreciate the color..

Thanks..

Thank you. And our next question comes from Angie Sedita of UBS. Your line is now open..

Thanks. Good morning, guys..

Good morning, Angie..

So Jeff, going back to the construction comments that you made in your prepared remarks and the Q&A here, you said that given that you build in-house, you can wait longer before you start to build.

Can you give us a little perspective of your construction time for that equipment? And has the cost structure changed from building this cycle versus the last cycle?.

I would say that we've seen the cost come down somewhat around the cost of building equipment. As we look out at what's available or what we can do in the marketplace, I think also some of that's our own value engineering as we think about how we take cost out of things and still achieve the same effective market-leading equipment.

With respect to timing, I'm not going to give you the precise timing, but it is going to be faster than anyone else, simply because we control that part of the value chain in our manufacturing facility. And that allows us to make no decision, certainly at this time.

And I think we can wait fairly deep into the cycle before we make any kind of decision about whether or not we bring out new equipment..

Okay, okay, that's helpful. And then on the cost pass-throughs, correct me if I'm wrong, but I thought a third of your sand that you're purchasing on the spot market.

And can you talk about the lag in passing through the cost to your customers? And are you seeing any challenges, at least maybe on your legacy equipment on getting the cost pass-throughs fully redeemed?.

Look, that's very competitive in terms around how we work with each of our customers, and they're different. What we do see is a path to manage inflation. And I do think in addition to that, some element of that inflation will abate as we get into the later half of the year..

Okay.

And then finally on pricing, besides frac and maybe directional drilling, are you seeing pricing gains in any other product lines?.

We are seeing pricing gains in the well construction service lines. However, those never fell quite as far, and so I don't think they have as far to move back up. But we are seeing, certainly, tightness in some of those service lines..

Okay, great. Thanks, I'll turn it over..

Thank you..

Thank you. And our next question comes from Jud Bailey of Wells Fargo. Your line is now open..

Thanks, good morning. I wanted to just touch base on your international outlook. Jeff, you mentioned in your comments something regarding operator budgets. The absolute oil price may be not as important as perception on stability and where it's going to be for the next several quarters.

If we're in a $50 to $55 world for an extended period, what is your sense on, number one, how international revenue would progress? But then also how do we think about your margins in that environment as well? It sounds like price pressure continues in certain areas.

Can you maybe talk about revenue outlook in a low to mid-$50 type environment, and how we could think about your international margins perhaps over the back half of the year and maybe on a longer-term basis?.

I think what we see is the stress in that part of the market is simply a cost piece of the issue.

And so how do we bring cost down to make a lot of those plays more competitive? And I think our customers are working on that now, but doesn't change the macro view that as North America is more competitive, where does that put some of these other markets? And our strategy is working with our customers, but it works slowly and in terms of bringing that cost down.

So as we look out, I think it will be muted in a range-bound world, that deepwater will be the slowest to come back. I think there is room to move around in the mature fields, and I think those will recover probably ahead of that in terms of activity, which is what we're seeing through the balance of the year.

But it is very competitive given the amount of equipment that is out around the world today..

All right, thanks for that.

And just to follow up on that, as we think about your international businesses, do you have other levers you could pull if revenue outlook is perhaps flat for a period and you make that determination? Do you have other levers you can pull to get your international margins higher to adjust for a new normal, if it comes to that?.

Yes, we do. We are constantly working on continuous improvement initiatives that take cost out of not only the business but also out of the equipment that we use. There are all kinds of breakthroughs as we look at how to make things work more effectively.

When I talk about our value proposition and how we collaborate and engineer solutions, a lot of that is how do we systematically take cost out of what we do, which ultimately improves our margins..

Okay. And then just my follow-up is on North America. It's been asked a little bit, and I wanted to try take it from a different angle. If I were to think about your portfolio today in the U.S.

in pressure pumping, is there a way to think about, I don't know, what percentage would be at leading-edge pricing, and then trying to think about how much is still under legacy pricing if I were to think about where it is today?.

Look, it's moving all of the time. So I'm really not, from a competitive standpoint, sharing with you where we are specifically. What I will tell you is that it's all moving up but in different paces, as commitments roll off and as new opportunities come along.

What I would tell you though is that the entire fleet is on that path moving up and to the right. What percentage of that, we will work through that through the balance of the year..

Okay, great. Thank you..

Thank you. And our next question comes from Ole Slorer of Morgan Stanley. Your line is now open..

Thank you very much. High-level question for me on North America. In the last cycle, you had your SandKing systems that delivered tremendous efficiencies to the industry.

And today, we're seeing a range of third-party last-mile and storage systems come into the industry of North America that delivers increased efficiency cycle-over-cycle for sand logistics. In the last cycle, the infrastructure broke down around 50 million tons, 60 million tons, it might have been north of that. You can clearly handle more.

But I'd like to have your view on what the bottleneck that creep into the industry will be, and when they should hit, and when do you think that will become evident? What are the other black swans, in other words? Could you offer us that, Jeff?.

I think, Ole, the definition of a black swan is we don't see it, but the....

Okay, the grey swans then..

The grey swans. Look, I think that the industry has demonstrated ability to overcome all of these. And that's one of the reasons that I'm very careful about how we invest in those things and what part of it that we own. I think that logistics will get tight, and it probably gets tight over the balance of the year.

I like where we are in that place particularly because of our investment in logistics, and rail, and all that goes with that, so confident there. Then I think about getting the cost out, you referenced how we handle sand and move it around. I think the containerized solutions are going to be very good.

I think they'll remove a lot of demurrage and allow us to move more sand more quickly. That's an example of technology having an impact. The other people and whatnot, I really do think is quite manageable, but with investment and the infrastructure that knows how to hire them, train them and put equipment to work..

You highlighted investment in a new coil tubing system, for example.

Are there other product lines that because of changes in relative science or new ways of doing things could become problematic?.

No. I mean, I think, we're in the market all the time. So I tried to walk you through some of how we view technology and how we approached that, but I think we are very effective in the market at addressing those things that if we want to invest in them, and we think that they create value for us, we can.

And we do those things that we feel like are going to be commoditized over time, or also the rents don't clearly accrue to us. I mean, that's another area where it may be better to partner with someone and not tie capital up where those rents don't accrue to us. And we've seen that over time..

Oh, and I would totally agree with that. The bottleneck might be very short in life, so I was more thinking about industry bottlenecks as opposed to Halliburton-specific bottlenecks..

Yeah, and I mean, as I said, I think it'll be around people over time. Talking about North America, will be challenging to get staffed up. And I do think logistics, overtime, will get tight, I do think so..

Just one follow-up on Iraq. You've put in your press release, a commentary that you're going back to work for Shell. Could you give us your view on activity in Iraq, in particular? The rig count has come down a lot, and those service companies talking about Iraq anymore.

What's going on in terms of investments into the existing fields and infrastructure there?.

Yeah, so I would say from a pay standpoint, it's kind of steady as she goes. What we like about it is our position in that market and the success that we've had with project management. And that's been a launch pad for us to kind of move that model more effectively into other parts of the Middle East and other parts of the world.

So we like our position in that market. The Middle East, overall, has been generally resilient, but again, from our standpoint, important piece of business..

Thank you very much..

Thank you..

Thank you. And our next question comes from Sean Meakim with JPMorgan. Your line is now open..

Hi. Good morning..

Good morning, Sean..

So, Jeff, could you maybe just talk a little bit about what you're seeing in terms of competitive dynamics between the basins in North America? So at this point, are things materially different for Halliburton in the Permian versus, say, the Bakken and Eagle Ford, or maybe there's less incremental activity so far but also for your competitors?.

Well, we've stayed invested in all of the basins throughout all of the cycles, and so we feel like it's important that we're there, that we have the basin expertise to work in all those basins. So we're, and to a certain degree, basin agnostic in terms of how we are positioned. Now, clearly, the Permian Basin's got the most activity.

I mean, you see all of those things. Look, I like the way we're positioned in each market..

Okay, fair enough.

Is it fair to say that you're back to working mostly all your fleets at 24/7 operation to this point?.

Yes, fleets are busy. We're starting to see even sort of the calendar firm up around customers with more than one rig and those sorts of things, which again, all inspire to help improve utilization..

Got it. And then just on international, you talked about better cash generation expectation the next couple of quarters.

Assuming with international customers, where are you still seeing challenges, and where are you going to get traction in terms of collections?.

I think generally seeing, with the exception of a few countries, we're seeing collections improving, not where they were at the end of the last cycle, but we see a path, we've got a great organization to connect with our customers and expect to see working capital continue to improve over the balance of the year. Thank you..

Okay. Yes. Thanks, Jeff..

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

Thank you, Candice. Look, I'd like to wrap up the call with a couple of key points. First, we're excited about the way North America's shaping up and believe that we'll outgrow the rig count in North America. Our reactivated equipment is going to work at leading-edge market pricing, while we wind up and repair pricing on our legacy portfolio.

And these are marking the path towards normalized margins. Now, while our more conservative international view is playing out, the international rig count has bottomed. And our strategy to collaborate and engineer solutions to maximize asset value is absolutely aligned with what's most important to our customers.

I'm confident that our team can handle the challenges in these markets. And so with that, thank you, and I look forward to talking with you next quarter. Candice, please close out the call..

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