Halliburton Company

Ladies and gentlemen, thank you for standing by, and welcome to Halliburton's first quarter 2021 earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Abhizeya, head of investor relations. Please go ahead, sir.

Good morning, and welcome to the Halliburton first quarter 2021 conference call. As a reminder, today's call is being webcast, and a replay will be available on Halliburton's website for seven days. Joining me today are Jeff Miller, Chairman, President, and CEO, and Lance 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, 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, asset dispositions, and other charges. Beginning this quarter, we have modified our free cash flow metric, a non-GAAP financial measure, to include the impact of proceeds from sales of property, plant and equipment. We believe this item is recurring in nature and including it improves comparability of this metric relative to our large-cap peers. Additional details including recalculation of this measure for prior periods and reconciliation to the most directly comparable GAAP financial measures are included in our first quarter earnings release and can also be found in the quarterly results and presentation section of our website. After our prepared remarks, We ask you to please limit yourself to one question and one related follow-up during the Q&A period 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. We're off to a good start this year. The world is reopening, and even though some regions still experience lockdowns, overall economic and demand recovery continues to build. Oil demand is increasing globally, Oil inventories are down near their five-year averages, and OPEC Plus actions continue to support commodity prices. The first quarter strengthened our confidence about how this transition year will play out. Our first quarter performance demonstrates the strength of our strategy and operating leverage in this global market recovery. Here are some highlights. International revenue grew 2% compared to the fourth quarter of 2020. marking an activity inflection in the international markets. Strong recovery in Latin America more than offset declines in other regions, while margins remained resilient. North America revenue grew 13% as both drilling and completions activity ramped up throughout the quarter. Higher utilization and our significant operating leverage supported sequential margin expansion despite weather disruptions. Our completion and production division revenue grew 3 percent, with increased North America and Latin America activity offsetting seasonal declines in other regions. Our drilling and evaluation division delivered solid revenue and margin performance. Revenue grew 11 percent, while margins increased 2.6 percentage points, driven by stronger drilling activity in North America and software sales across multiple regions. Finally, we delivered approximately $160 million of free cash flow in the first quarter, which is a great first step to delivering strong free cash flow for the full year. This was another quarter of solid execution on our five strategic priorities that define Halliburton's path and will drive our success. We are committed to drive profitable growth internationally, maximize value in North America, accelerate and integrate digital technologies, improve capital efficiency, and actively participate in advancing cleaner, affordable energy. Our first quarter performance demonstrated that aligning our actions with these strategic priorities boosts our returns and free cash flow generation. We expect to continue delivering strong free cash flow and industry-leading returns as we move through the year. We are encouraged by the inflection in international activity we saw during the first quarter and anticipate that recovery will gain momentum across all regions in the second quarter and beyond. Today, we see early indicators of future activity growth internationally. Our completion tool orders, a leading indicator of upcoming work, grew throughout the first quarter. The volume of tendered work has significantly increased. We're on pace to nearly double the value of submitted bids compared to last year, with the most work coming from the NOCs in the Middle East, followed by Latin America. These signs give us greater conviction that the second half of this year will see a low, double-digit increase in international activity year-on-year. We believe the international markets will experience multiple years of growth. However, this upcycle is expected to be structurally different from prior cycles, and Halliburton's international business is better prepared to benefit from it. Here's why. We expect the NOCs and other short-cycle barrel producers will increase investments and gain share to meet future oil demand growth. Halliburton has the established footprint and the customer relationships to capitalize on this growth. As fields become smaller and more complex... operators work harder to produce more barrels. Their pursuit of incremental production to meet future oil demand growth should require higher service intensity. In certain markets, maturing assets are changing hands. New owners require proven technology and experience to revitalize their assets and unlock remaining reserves. Halliburton's broad technology portfolio, local expertise, and commercial flexibility are helping these customers achieve their efficiencies and production objectives. Multiple years of service company capex reductions limit equipment availability in the international markets. In early 2020, pre-COVID, international pricing was beginning to increase on the back of equipment tightness but paused with the oil demand collapse. As the world reopens and activity rebounds, we expect large tenders to remain competitive but leading-edge pricing should increase. Our strategic priority is clear. Deliver profitable growth as the expected international recovery unfolds. We believe the following factors will help us accomplish this. First, we expect our ongoing investment in technology innovations to benefit us as the market recovers. For example, as the global leader in completions technology, we introduced the Ovidius Expanding Isolation Packer, Avidius uses material science innovation to transform a metal alloy into a rock-like material when it reacts with downhole fluids. It creates a long-lasting seal for improved well integrity and is specially suited for high-pressure and high-temperature environments, as well as permanent plug and abandonment operations. Our Completion Tools R&D Pipeline incorporates the latest advancements in material science, sensors, telemetry, and digitalization Ovidius is one good example of this pipeline. The successful rollout of our iCruise Intelligent Drilling System continues to deliver excellent results. In the first quarter, iCruise improved drilling speeds 55% for a customer in the Middle East, saved an operator three days of rake time in the North Sea, and increased drilling rates 25% compared to offset wells in offshore China. Our production business continues to expand internationally with unique growth opportunities. We plan to start executing on our first multi-year electric submersible pump contract in the Middle East in the second half of this year. We see significant volume and future growth potential for artificial lift solutions in the Middle East as many mature fields across the region come off natural flow and require ESPs to sustain production. With proven Summit ESP technology, a strong local presence, and a focus on profitable growth, we expect to thrive in this market. As we progress towards completing our specialty chemicals plant in Saudi Arabia, we are actively participating in regional tendering activity. In addition to providing new business opportunities, this plant will also manufacture chemicals for our internal consumption, We expect the new plant to deliver cost savings and profitable growth for Halliburton in 2022 and beyond. Finally, we are accelerating the deployment and integration of digital technologies with our customers. We believe digital creates technological differentiation, contributes to higher international margins, and drives internal efficiencies. In the first quarter, we introduced a new real-time data transmission system for a major customer in the North Sea. This high-fidelity, low-latency data highway is an essential building block for virtual remote operations that are performed without human intervention and use real-time data and tailored algorithms. We also launched a new digital workflow on a private cloud for an integrated services contract in the Middle East. This workflow helps our employees make better decisions. It uses a proprietary natural language processing service to extract specific information from a variety of documents and locate associated data in our data lake. This is digital technology in action, facilitating collaboration and knowledge management while improving operational efficiencies. These digital technologies are important milestones in our journey from digital planning to virtual execution. We're using our open architecture platform to integrate real-time information from the customer, Halliburton's many digitally-enabled technologies, and third-party providers across the entire asset. I believe that Halliburton's current strengths and new capabilities will deliver profitable growth in a multi-year international recovery. Today, North America is staging a healthy recovery. In the current oil price environment, shale operators have a larger portfolio of economically viable projects. As a result, the average U.S. land rig count grew 27% sequentially in the first quarter, outpacing the growth in completed stages. We still expect the majority of our customers to remain committed to a disciplined capital program this year. But what we are seeing today solidifies our confidence in a steady activity cadence for the rest of the year as operators work to maintain their productive capacity. The market dynamics continue to improve. Supportive commodity prices should allow our customers to spend their announced budgets and meet their cash flow objectives. Customer mix should transition as the year unfolds. Privates led the recovery in the first half and we expect some public companies to increase activity in the second half of the year. Halliburton serves both of these customer groups, aligning with operators that have longer term and more efficient programs. As a result, demand for our equipment is increasing and our calendar is filling up for the rest of the year. Last year, we use digital technology to redesign our service delivery approach and create significant differentiation in our cost structure. Adding to our cost reset in 2020, we continue to drive cost out of our North America operations. As an example, we've engaged with Vortub, a software company that designed an artificial intelligence supply chain platform to transform how we buy, move, and sell sand and trucking within our U.S. land operations. Without human intervention, Borto's platform optimizes thousands of logistics loads per day, while also identifying and addressing issues before they occur. This fits with our strategic priorities to use digital technology to drive down costs in our business and to maximize value in North America. Together with our size and scale, our sustainable operating leverage should widen our margin differential relative to our competitors in North America. We are steadily improving margins and our first quarter performance was another step in the right direction. As we look ahead, we see upside to our margin performance based on utilization, technology, innovation, and pricing. Utilization is the first step to better margins. With a smaller equipment base and the right customer alignment, we intend to continue optimizing utilization as market demand grows. Given our scale, The operating leverage impact from utilization increases alone should improve our cash flow generation in North America. Technological differentiation and digital innovation is the next step. Halliburton has the leading low-emission solutions in the market today, both electric and dual fuel, and we expect they will command a premium as market demand expands. As the leader in hydraulic fracturing, Halliburton has the scale and R&D depth to deliver a proven, power-agnostic, capital-efficient solution for E-FRAC. Deployed in the Permian Basin, our fully integrated all-electric FRAC site includes our 5,000-horsepower Zeus electric pumping unit, our new ExpressBlend blending system, E-Winch electric wireline unit, and the Electric Tech Command Center. Built using our flagship Q10 pumps, Zeus delivers performance levels up to 40% higher than conventional pumps and substantially reduces emissions limited only by the grid power source. As certain components of our input costs rise, we are working with our suppliers and our customers to adjust our gross pricing in line with cost inflation we are seeing in the market. While improving U.S. economic activity and winter weather disruptions led to increases in sand, chemicals, cement additives, and raw materials costs, Halliburton's purchasing power and technology have allowed us to procure and deliver these materials in a cost-efficient manner, such that both Halliburton and our customers are more competitive. Service pricing improvement is the final step. We're not there yet, but we see positive signs of market rebalancing that should drive future pricing improvements. Total fracturing equipment capacity has limited room to grow in the current pricing environment. Continued attrition from rising service intensity and insufficient returns for many service companies is altering the industry dynamics. Because we are an integrated provider, Halliburton participates in all key businesses in North America today. and will benefit more than others when pricing moves up. We believe that Halliburton's leadership and strength in North America will allow us to take advantage of positive market dynamics and deliver on our strategic priority to maximize value in this market. Consistent with our strategy, we continue to turn every knob to manage greater capital efficiency and drive solid free cash flow generation. This takes many forms. It includes important technology advancements in multiple product service lines, whether digital or equipment-related, process changes that improve the speed with which we move equipment and respond to market opportunities, and finally, actions to reduce the pace of working capital consumption required to grow our business. The first quarter was a good demonstration of this, and we will continue to build on these actions. We're also executing on our strategic priority to advance cleaner, affordable energy and to support sustainable energy advancements using innovation and technology to reduce the environmental impact of producing oil and gas. Halliburton has a three-pronged approach to achieving this objective. First, we recently released our target to achieve 40% reduction in Scope 1 and 2 emissions by 2035 from the 2018 baseline. This is consistent with our goal to reduce the carbon footprint and environmental impact of our operations and follows our commitment to set science-based targets announced last year. Second, we are innovating. We continue to develop and deploy low-carbon solutions to help oil and gas operators lower their current emissions profiles. We also use our existing technologies in renewable energy applications. For example, Today, the geothermal market in Europe is growing rapidly and represents an attractive expansion opportunity for our artificial lift business. We're currently supplying electric submersible pumps specifically designed for the high-temperature large wellbore applications on a geothermal project in Germany. We're also providing drilling and cementing services for geothermal wells in Indonesia. We developed new high-temperature cementing formulations and directional drilling techniques that increase geothermal sites' generating capacity and improve project economics. And finally, we are excited about the progress of Halliburton Labs, our clean energy accelerator. In the first quarter, we announced Halliburton Labs' inaugural group of participating companies. They are working on solutions for transforming organic and plastic waste to renewable power, recycling of lithium-ion batteries, and converting carbon dioxide, water, and renewable electricity into a hydrogen-rich platform chemical. We are collaborating with these companies and providing world-class industrial capabilities and expertise to help them achieve further scale and increase their valuations. This engagement in the clean energy space will inform Halliburton's future strategic decisions as the energy transition evolves. We are taking applications for the next cohort of participants as we continue bringing early-stage clean energy companies into Halliburton Labs. To sum up, we entered 2021 optimistic and focused on innovation. We believe that the early positive momentum in North America will continue, and the international market recovery will accelerate in the second half of the year. Halliburton will continue to execute on our key strategic priorities to deliver industry-leading returns and solid free cash flow as the anticipated multi-year recovery unfolds. I will now turn the call over to Lance to provide more details on our financial results. Lance?