Halliburton Company

Ladies and gentlemen, thank you for standing by, and welcome to Halliburton's fourth quarter 2020 earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Abu Zeya, head of investor relations. Please go ahead, sir.

Good morning, and welcome to the Halliburton fourth quarter 2020 conference call. As a reminder, today's call is being webcast, and a replay will be available on Halliburton's website for seven days. Joining me today are Jeff Miller, Chairman, President, and CEO, and Lance Leffler, 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, 2019, and Form 10Q for the quarter ended September 30, 2020, recent current reports on Form 8K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures that exclude the impact of impairments and other charges. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter earnings release and can also be found in the quarterly results and presentation section of our website. After our prepared remarks, we ask that you please limit yourself to one question and one related follow-up during the Q&A period in order to allow time for others who may be in the queue. Now, I'll turn the call over to Jeff.

Thank you, Abu, and good morning, everyone. Let me start by looking back at the year that just ended. 2020 was a year like no other. We faced a global pandemic, record oil demand destruction, and an unprecedented downturn in the energy industry. Despite these turbulent times, Halliburton demonstrated resilience and performed consistently with our execution culture. Before we get to our results, I want to address our outstanding employees. I thank you for your hard work and execution throughout the entire year. You answered the call for safety, collaboration, and service quality and delivered for Halliburton's customers and our shareholders. Now I want to highlight a few of our 2020 accomplishments. We delivered historic bests in all of our key safety and service quality metrics. Recordable injury rate, lost time injury rate, vehicle incident rate, environmental recordable rate, and non-productive time. Each of these key metrics improved by over 20%. and most did so for the second year in a row. This was a result of our employees' continued commitment to safety and process execution despite the year's distractions. Total company revenue of $14.4 billion outperformed the global rig count decline of 38%, demonstrating the strength and diversity of our business. Our swift and decisive cost actions and service delivery improvements reset our earnings power, allowing us to deliver resilient margin performance. Our completion and production division finished the year with close to 16% operating margins, exiting the year higher than where they started. These results highlight the success of our structural cost reductions and process improvements. Our drilling and evaluation division had a strong full-year margin performance, despite the rig count declines experienced in all regions. We delivered over $1.1 billion of free cash flow for the year, demonstrating our ability to generate strong free cash flow throughout different business environments. We increased the breadth and depth of our digital offerings and delivered best-in-class performance across a spectrum of digital technologies. And we successfully launched Halliburton Labs, a collaborative environment where entrepreneurs, academics, investors, and industrial labs come together to advance cleaner, affordable energy. Now let me share a few points about our fourth quarter performance. We finished the quarter with total company revenue of $3.2 billion, a 9% sequential increase, and adjusted operating income of $350 million, an increase of 27% sequentially. This marks the first quarterly revenue increase since the activity declines began last March. Our completion and production division revenue increased 15% sequentially, while operating income improved 33%, resulting in an operating margin improvement of 2% over the prior quarter. Our drilling and evaluation division revenue and operating income grew 2 and 11% respectively. Higher rig activity in the western hemisphere was offset by rig count declines in the eastern hemisphere. International revenue remained flat sequentially. Activity in Latin America improved for the second quarter in a row. Activity declines continued in other regions, but at a slower pace compared to the prior quarters. And lastly, our North America revenue increased 26% sequentially driven primarily by increases in both drilling and completions activity in U.S. land. Our overall strong performance was a direct result of our focus on the key strategic priorities that define Halliburton's path, now and into the future. We are focused on profitable growth in our strong international franchise, and we are driving strategic changes in North America and building a leaner and more profitable business. We are accelerating the deployment and integration of digital technologies both internally and with our customers. We are driving capital efficiency by advancing our technologies and making strategic choices that lower our CapEx profile. And we are an active participant in advancing a sustainable energy future. As we start the new year, we believe that the worst is behind us and look to the future with optimism. Oil prices are back to pre-pandemic levels, driven by global vaccine distribution, an unfolding demand recovery, OPEC Plus discipline, and a declining production base. However, some caution is appropriate due to the surge in COVID-19 infections globally and the expected gradual return of spare production capacity. Our five strategic priorities will continue to drive Halliburton's success as markets around the world stabilize and start to grow. We believe that aligning our actions with these priorities will boost our returns and free cash flow generation both today and as the recovery unfolds. We set these priorities according to our long-term view of the market. As oil demand recovers, we expect to see favorable market dynamics and the beginning of a multi-year energy upcycle. However, we believe this recovery will look different than prior cycles. International short cycle producers will have an opportunity to gain share. North American E&Ps will increase spending from current levels that will take a more disciplined approach to growing production in the future. We believe that the overall cost and environmental impact of producing oil and gas will continue to decline due to innovation and technology adoption. As a result, Oil and gas will remain a critical and significant component of the energy mix. I expect that our gains achieved in 2020, including service delivery improvements, structural cost reductions, and capital efficiency, are firmly in place and sustainable. Halliburton is uniquely positioned in all markets and is prepared to deliver on both our customer expectations and our shareholder objectives. Our strong international business outperformed the market. Our full-year international revenue declined 17%, while rig counts and customer spending were down more than 20%. All regions except Latin America declined in the fourth quarter, but at a slower pace. In the first quarter, we expect international activity to be impacted by typical weather-related seasonality and the absence of year-end product sales. Activities should bottom during the first quarter and improve as the year unfolds. For the full year, we expect activity recovery to vary widely across regions. Latin America will continue its upward momentum off a very low bottom, both onshore and offshore. Asia Pacific is also showing signs of activity improvement. We believe parts of Europe and West Africa will remain slow, especially in the deepwater areas. As for the Middle East and Russia, we believe they will manage activity based on expectations of the economic and demand recovery. While the pace of recovery depends on the trajectory of demand improvement, we believe the second half of this year could see a low double-digit increase in international activity year on year. Halliburton is well positioned to benefit from this increase. Let me be clear. Our target is profitable growth. Against a tough activity backdrop in 2020, we remained focused on increasing profitability and our actions resulted in overall international margin improvement. In 2021, we expect that several factors will continue to drive Halliburton's profitable international growth. Halliburton will benefit from our improved position in the international markets this cycle. We are stronger. technically, geographically, and organizationally. We have exposure to mature fields completions and interventions work, a deck of resilient integrated contracts around the world, leverage to unconventional developments in Latin America and the Middle East, and a leading position in key active offshore areas. While the international sales cycle tends to be longer, we now have line of sight to activity increases in the coming quarters. Tender activity has picked up recently, led by the NOCs in the Middle East and Latin America, and new opportunities are emerging with operators in other regions. Our customers have also pulled forward mobilization plans for various contracts awarded to Halliburton that were put on hold due to the pandemic. Our new drilling technologies are penetrating the market and gaining customer confidence. For example, we exited the year with a three-fold increase in our Earthstar deep resistivity sensor revenue As activity recovers, our technology provides us with a tremendous opportunity to profitably grow revenue. We see significant growth potential in the continued international expansion of our production businesses, especially in mature fields around the world. For example, the international artificial lift market tends to be more resilient and is longer cycled. Once an operator puts its field on a specific form of lift, it typically stays on it for many years. We are currently mobilizing for our first multi-year electric submersible pump contract in the Middle East and are excited about the opportunities Artificial Lift opens for us in the region. The construction of our specialty chemicals plant in Saudi Arabia continues to progress towards final completion. When it is complete, Halliburton will have a differentiated value chain in the region that maximizes local content, delivers customized solutions more quickly, and shortens customer lead times. I'm excited about these two new additions to our international portfolio that provide us with unique growth opportunities. Finally, adoption of Halliburton's digital solutions helps our customers to reduce cost per barrel, improve project economics, and increase efficiencies. Our Halliburton 4.0 digital offerings in subsurface, well construction, and reservoir and production create differentiation and margin growth opportunities for Halliburton. We are pleased that in 2021, several international oil companies are deploying Decision Space 365 cloud applications to streamline and automate their well construction activities. I believe that digital and other technology advances, geographic expansion of our products and services, along with continued discipline in cost management and capital efficiency, should allow Halliburton to continue delivering profitable returns-driven growth in the international markets. Turning to North America, the strategic actions we took last year reset Halliburton's earnings power in this critical but structurally smaller market. We are the leader in North America and the only integrated oilfield services company still active in the hydraulic fracturing market. In the fourth quarter, our North America business took advantage of the recovering completions and drilling activity and delivered continued margin improvement even without improved pricing. Completion stage counts increased in the oil basins but declined modestly in the gas plays. While the U.S. land rig count recovered from its August 2020 low of 230 rigs, it is still 60% below the pre-pandemic levels. Private and small operators added the most rigs, while large E&Ps and majors moved more slowly. We expect completions activity in North America to continue improving in the first half of 2021, as commodity prices remain supportive and customers complete their backlog of ducks. Customer consolidation will likely continue, and we expect most operators will remain committed to a disciplined capital program. For the full year, provided that the impact of the pandemic moderates, economic activity continues to increase and oil price remains solid, I am optimistic that our customers will sustain activity in order to hold their production flat to 2020 exit levels with completion spend outpacing drilling. I'm excited about Halliburton's future in North America, and here's why. We completed the most aggressive set of structural cost reductions in our history, giving us meaningful operating leverage in a recovering market. We also made significant changes to our processes that drive higher contribution margin, for example, how we perform equipment maintenance and provide engineering support. We believe the benefits of these changes will have a meaningful impact on our margins as activity picks up. The hydraulic fracturing market structure continues to improve. Utilization of our active equipment is higher than it was at the beginning of last year. The market has continued to rationalize and consolidate. We are seeing competitors either cannibalize idle equipment for parts or use it to beef up working fleets, thus increasing average horsepower per fleet. This will make equipment reactivation to meet growing demand a lot harder for capital-constrained companies and should only accelerate supply and demand balancing. As activity starts to increase, Halliburton has a unique competitive advantage and sufficient capacity to respond without adding incremental capital. Our in-house engineering capabilities to refurbish, maintain, and continuously improve our fracturing and perforating equipment minimize the cost and time to deliver the necessary equipment to our customers and take advantage of the market recovery. We are also well positioned to profitably grow in our competitive non-hydraulic fracturing businesses in North America. For example, in 2020, our artificial lift business developed and implemented new digital capabilities increased remote operations jobs, and solidified its strong market position in North America. We also expect our well-construction technology investments to best position Halliburton to outperform as drilling rigs return. Using the Halliburton 4.0 digital framework, we continue to collaborate and engineer solutions that maximize our customers' asset value. Last quarter, we launched our Smart Fleet Intelligent Fracturing System and successfully completed a customer engagement in West Texas. Smartfleet is an industry first, where intelligent automation manages and executes live treatment decisions to optimize subsurface fracture outcomes. By using Smartfleet, the operator was able to consistently visualize and measure fracture propagation and control fracture placement through automation. Importantly, The system provided a level of subsurface control that was previously not possible and enabled the customer to actively drive their completion outcomes in real time. We are building on this success with multiple customer commitments across different basins. I believe this is the biggest step forward in fracturing technology in a long time. Let me give you a few more examples of how we are accelerating Halliburton 4.0 digital adoption. In the North Sea, we successfully delivered the first fully automated cement job where the offshore cementing unit executed the work without human intervention. This is an important milestone in reaching the vision of fully autonomous offshore well construction that has significant implications for efficiency, safety, and operating costs. In 2020, we more than tripled the number of Decision Space 365 users on the iEnergy cloud platform. Our customers also increased adoption of the Decision Space 365 Asset Simulator. Operators in Europe, Latin America, and Asia ran over 3,000 reservoir simulation scenarios on the iEnergy Cloud with speeds of up to seven times faster than with conventional on-premise simulators. Finally, we are teaming up with Accenture to drive the digital transformation of our supply chain. This will result in process efficiencies across large volumes of transactional activities, lower our overall cost, and free up resources to drive strategic decision-making in support of our operational requirements. Next, I want to discuss capital efficiency, a key enabler of our other strategic priorities. Leveraging new materials and design approaches, as well as digital innovation, we've been able to significantly reduce CAPEX requirements and extend the life of our equipment. We are continuing our ICRU's drilling system deployment and are reaping the benefits of a reduced CAPEX profile and higher asset velocity. Technology advancements in multiple product service lines in both divisions are allowing us to improve design and service configuration to save time and money both for our customers and Halliburton. Finally, I would like to highlight several important actions we took in alignment with our strategic priority to participate in advancing a sustainable energy future. We are working to reduce the carbon footprint and environmental impact of our own operations and have committed to setting targets through the Science-Based Targets Initiative to reduce our greenhouse gas emissions. With this commitment, Halliburton joins over 1,000 global companies taking science-based climate action This is important in our journey to align with the latest climate science and contribute to sustainable energy advancement. We are also collaborating with our customers to produce oil and gas more efficiently while reducing their emissions. We are currently performing the first electric grid-powered fracturing operation for Simerex Energy in the Permian Basin. With over 300 stages on multiple wells already completed, Caliburn's electric-powered equipment has allowed the customer to achieve pump rates that were 30 to 40% higher than conventional pumps by utilizing the maximum grid power potential. Grid-powered electric spreads require substantially less capital, a smaller footprint, and are more efficient compared to turbine power. When demand for emission reduction solutions translates to better pricing, I expect we will replace, within our planned capital budget, some of our conventional fracturing capacity with electric over the course of a normal equipment replacement cycle. Halliburton is starting the new year with a clear sense of purpose. We believe that our strategic priorities are the right ones, and our margins in the fourth quarter demonstrated that. We are confident that the actions we have taken are sustainable, and we are well positioned both internationally and in North America for the unfolding market recovery. I'll now turn the call over to Lance to provide more details on our financial results. Lance?