Halliburton Co HAL
Q2 2013 Earnings Call Transcript
Transcript Call Date 07/22/2013

Operator: Good day, ladies and gentlemen, and welcome to the Halliburton Second Quarter 2013 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. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Kelly Youngblood. Sir, you may begin.

Kelly Youngblood - IR: Good morning, and welcome to the Halliburton's second quarter 2013 conference call. Today's call is being webcast and a replay will be available on Halliburton's website for seven days. The press release announcing the second quarter results is also available on the Halliburton website.

Joining me today are Dave Lesar, CEO; Jeff Miller, COO; and Mark McCollum, CFO. Tim Probert, President of Strategy and Corporate Development will also be available today for follow-up calls.

I would like to remind our audience that some of today's comments may include forward-looking statements reflecting Halliburton's views about future events and their potential impact on performance. These matters involve risk and uncertainties that could impact operations and financial results and 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, 2012, Form 10-Q for the quarter-ended March 31, 2013, and the recent current reports on Form 8-K.

We will welcome questions after we complete our prepared remarks. We ask that you please limit yourself to one question and one related follow-up to allow more time for others who have questions.

Now, I'll turn the call over to Dave.

David J. Lesar - Chairman, President and CEO: Thank you, Kelly, and good morning to everyone. Overall, I'm pleased with our second quarter results. Total Company revenue of $7.3 billion was a record quarter for Halliburton and operating income was over $1 billion. We achieved record revenues this quarter in our Baroid, Cementing, Completion Tools, Multi-Chem and Testing product lines. From an operating income perspective, Baroid, Testing and Artificial Lift also set new records.

Turning to the geographies, our international operations grew 8% sequentially, which is at the top of our peer group. This growth came from record revenues in both of our Eastern Hemisphere regions. Compared to our two primary competitors, we have delivered leading year-over-year international revenue growth over the last five quarters. Also notable for the quarter, our international revenue comprised almost half of our total company revenue, which clearly demonstrates the success in our ongoing strategy to grow our international business and balance our geographic mix. So clearly, we are not just a North America pressure pumping company.

Our Eastern Hemisphere played out as we expected. Revenue was up 11% sequentially, and operating income was up 23%. I want to specifically highlight our Middle East/Asia region, which had an outstanding revenue growth of 20%, and operating income growth of 43% relative to the second quarter of last year. This is a very exciting market for Halliburton today, and we expect our Middle East/Asia region to be the highest growth one that we have led by Saudi Arabia, Iraq and all of Asia.

For the year, we still fully expect Eastern Hemisphere margins to average in the upper teens, with year-over-year revenue growth in the mid-teens. With pricing improvement opportunities in the Eastern Hemisphere continuing to be somewhat illusive, our current operating bias is toward improving our utilization and efficiency as we address the increase spend from our customers.

Jeff will discuss the weaker than expected Latin America performance, and the Mexico integrated project market in greater detail. But I want to be clear on one thing, we feel confident that revenue and margins in Latin America will improve in the second half of the year. We expect margins to improve in the third quarter, and approach the mid-teens level and expect full year margins to be approximately the same.

In summary, our international outlook has not changed. We expect consistently solid year-over-year growth in several key markets. Although there is still uncertainty around Egypt, Libya, and Northern Mexico activity for the near-term, our deepwater share gains, coupled with increased rig count in Saudi Arabia and an anticipated rebound in Latin America during the second half provide us confidence that we will continue to outperform on a relative basis to our peers.

North America also delivered results as we expected and I'm pleased with the quarter. Revenue was up 3% despite a sluggish U.S. land rig count and a 71% lower Canadian rig count. We also saw 120 basis point sequential improvements in our margins to 17.5%. We are now expecting the rig count to remain relatively flat for the remainder of the year as we observe a meaningful switch to multi-well pad activity among our customer base.

We believe these incremental drilling efficiency gains will provide for higher service intensity. We currently estimate that pad drilling represents as much as 50% of the activity across key U.S. basins and will continue to tick higher.

As an example, we've seen the Eagle Ford grow from less than 40% pad activity last year to over 60% today. Ultimately, we believe this efficiency trend bodes very well for us in the long run as our scale and expertise allows us to lead the industry in executing factory-type operations, and despite issues around capacity, utilization, and pricing, for the balance of the year we do expect North American margins to continue to improve. We believe we have reasonable visibility around North America activities for the third quarter. At this time it's too early to tell the full extent of customer plan revisions and their impact on activity in the fourth quarter. However, we believe that current commodity prices make budget reloading a more compelling option for our customers, which could help mitigate the risk to a fourth quarter slowdown.

I am optimistic about Halliburton's relative performance for the remainder of the year and our ability to grow our North America margins, and continue to realize revenue and margin expansion in our international business. Our strategy is intact and working well and we intend to stay the course. We will continue to drive toward expanding our global portfolio in deepwater, mature fields, and unconventionals.

We have been and will continue to be focused on delivering best-in-class returns. We bought back $1 billion of shares in the second quarter and today announced an additional repurchase authorization to a total of $5 billion. These actions reflect our growing confidence in the strength of our business outlook and our ability to not only increase our buybacks, but our dividends, while leaving room for any capital spending or additional acquisitions we may want to do.

Now, let me turn the call over to Jeff and he'll provide some additional operating detail.

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: Thanks, Dave, and good morning, everyone. Let me begin with an overview of our second quarter results. The Eastern Hemisphere had solid sequential improvement compared to the first quarter of 2013, with revenue growth of 11% and operating income growth of 23%. The improvement was led by seasonal recoveries in Norway and Russia, along with improved activity levels in Angola and across all of Asia.

In the Middle East/Asia region, compared to the first quarter, revenue and operating income increased 12% and 17%, respectively. The growth was driven by higher stimulation, wireline and fluids activity in Malaysia, increased drilling and stimulation activity in China, and improved profitability in Iraq. The Middle East/Asia is a high growth region for us, and Malaysia is a great example, where our revenue grew 40% year-over-year and profit more than doubled driven by our strategic offshore wins. We continued to build on this success in the second quarter displacing a major competitor to provide offshore cementing services, and in addition winning a series of fluids contracts in Malaysia with an aggregate estimated value in excess of $500 million over the next four years.

Additionally, continuing our growth in Saudi Arabia, in the second quarter, we were awarded a three year lump-sum turnkey project to provide reentry services in an existing field. This strategic win comes in addition to the recently expanded award for our multi-rig turnkey project in the kingdom.

Turning to Europe/Africa/CIS, relative to the first quarter, revenue and operating income increased 9% and 33%, respectively. The improvement was driven by higher fluids and cementing activity in Russia, increased stimulation, fluids and completion tools activity in Norway, and higher drilling and completions activity in Angola.

A highlight of note in the region; during the second quarter, our Baroid product line partnered with Cobalt International Energy to transfer our supersaturated riser viscosity fluid technology from the Gulf of Mexico to deepwater Angola. This fluid is the key enabler of riserless deepwater drilling and we believe this technology will be instrumental to the future success of Angola's new subsalt drilling project.

Within Europe/Africa/CIS region, we also have been successful in executing several strategic integrated projects. Let me give you a few examples now. In Russia, we saw early success with our Em-Yoga integrated tight oil project. The project began earlier this year and by applying unconventional, multistage completion techniques to these mature fields, production has already materially exceeded targets, leading to substantially increased activity in this field.

In Norway, we recently completed the first phase of an integrated multi-well project. Based on our success in delivering services and accelerating the production cycle, our contract has been renewed to 2015 and was expanded to include two additional fields.

Finally, in the Danish sector of the North Sea, we were recently awarded a five-year multi-product line contract with an estimated value of over $100 million to provide services on a high-pressure, high-temperature development. This award was based on our proven track record of delivering integrated services in the Scandinavian market and our recognized expertise with HP/HT services.

All three of these projects are good examples of how we collaborate internally and with our customers to drive value into a project both for the operator and for Halliburton. Overall, our Eastern Hemisphere performance has been impressive. We look back to this time last year; we've grown revenue by 16% and operating income by 22%.

In Latin America, we had a disappointing start to the year. Revenues were flat compared to the first quarter and operating income was down 7% as a result of reduced drilling activity in North Mexico, increased mobilization costs in both Brazil and Mexico, and lower vessel activity offshore Mexico.

So moving into the second half of the year, we're confident that we will see an uptick in Latin American financial results. Let me touch on a few of the key drivers now. In Colombia, we see second half levels improving as our customers resolve some of the recent permitting delay. In Brazil, during the third quarter, we will complete mobilization of our directional drilling contract and expect to transition to our new market share in the fourth quarter. Finally, in Mexico, we expect to see the largest improvement.

In the third quarter, we're confident that we will secure contract approvals related to our consulting and software services and see increased utilization of our stimulation vessels. We also expect to have finished mobilization of equipment for our recent offshore intervention services contract.

We anticipate the North Mexico activity will continue to be an issue for the region in 2013. However, I'm pleased to announce that we were recently awarded the Humapa block by PEMEX in the latest round of incentivized projects.

Scheduled to begin in early 2014, this estimated $1.2 billion project is for a multiyear asset management contract in the Chicontepec Basin. This most recent round of incentivized contracts differs from the previous round and then it provides a 100% cost recovery for our services during the first phase of the project. We expect returns through this project to be generated from our own service revenues and to be accretive to our overall business.

We were very selective in targeting the Humapa block. In fact, it was the only one we bid on, because we believe that this project will generate robust returns at a lower level of risk and that our experience in the nearby Remolino laboratory gives us the technical advantage in delivering timely productive wealth.

We are also currently evaluating a pipeline of large integrated projects in Mexico valued at an estimated $8 billion. We expect this work will be awarded towards the end of the year. With a combination of these integrated projects and the Humapa project, we’re excited about 2014 and beyond for Mexico.

Let me give you a few other Latin American highlights for the quarter. In Brazil, we inaugurated our technology center in Rio de Janeiro where Halliburton personnel will collaborate with operators and the country's leading university, and a global center of expertise for both deepwater and mature fields. Further, in the ultra-deepwater pre-salt market at Brazil, Halliburton successfully performed the deepest wireline fluid sampling and rotary sidewall coring job ever undertaken. Samples were retrieved from depths of over 22,000 feet helping our customer identify the most productive zones of this exploration well.

We also see opportunity in the offshore Mexico market where we recently displaced a major competitor to provide open-hole logging services on a deepwater well based on our reservoir characterization portfolio, including our geo-mineralogical tool and our RDT formation tester with fluid identification.

Now, moving to North America, revenue was sequentially up 3% and operating income was up 10% driven by increased U.S land activity partially offset by reduced seasonal activity in Canada. Consistent with the first quarter, approximately 85% of our crews are under long-term contracts and about three quarters are working 24-hour operations. In spite of a relatively flat sequential U.S. rig count, drilling efficiencies in the trend towards multi-well pads are driving a more robust well count.

Additionally, in some cases, we’re seeing operators increasing the number of stages on horizontal wells performing as many as 40 stages per lateral in the Marcellus in certain examples. It's our view that the resulting increased well count and stage count could absorb a meaningful percentage of the excess horsepower and help drive service intensity across all product lines. Although we believe excess pressure pumping capacity has diminished since the first quarter due to rising demand, there is still an oversupply in the market. As a result, we anticipate that pricing pressure will persist to some degree across many North American basins in 2013.

Additionally, as we gauge the utilization of our equipment on a 24/7 basis, we see a significant opportunity to improve and drive the white space. By that I mean the downtime out of the schedule. In this environment, we believe it's more important than ever to be aligned with the most efficient customers where we can create the most value for our customers and deliver the best returns for Halliburton.

We're continuing to execute our strategy around surface efficiencies, subsurface technology, and custom chemistry, delivering differentiated services that generate superior returns over the long-term.

As part of this larger strategy, Frac of the Future and Battle Red are really the platforms that enable surface efficiency, and we expect to see increased performance at the wellhead as we incorporate these tools into our processes.

Battle Red effectively applies new processes and technologies to standardize and automate integrated workflows across our product line, driving improved efficiency across our North American service delivery organization.

Although there are some associated cost savings, this initiative is primarily directed at improving working capital and cash. We're targeting a 50% reduction in days to bill our customers and we expect these tools to also be able to help manage inventory levels, reduce overtime, and optimize well site deliveries.

As an example, we've already seen a 15% to 20% reduction in costs around freight and standby charges. We anticipate the Battle Red rollout will be completed in the first quarter of 2014.

Next is our Frac of the Future program, which is designed to reduce capital and operational costs at the well site. Early data indicates, our Q10 pumps are running two to three times longer than existing Halliburton pumps and five to six times longer than the industry standard before requiring maintenance, which we anticipate will reduce our fleet maintenance expense 5% to 30%.

This efficiency also allows us to reduce the equipment needed on location by an average of 25%, decreasing the capital required to deliver frac fleet and reducing labor and fuel costs.

Specific to labor, through process automation and reduced vehicle counts on the job site, over the last two years, we have reduced our crew sizes by close to 30% and believe our crews on location are currently streamlined. When we look at what we're able to deliver on a stage for headcount basis, we've seen a 40% rise in executional efficiency over the same time period.

By the end of this year, we anticipate that close to 20% of our fleet will be converted to Frac of the Future. The rate at which we deploy going forward will be dependent on three factors; North America natural gas activity, the growth of international unconventionals, and our requirement to replace older equipment.

We believe our manufacturing capability is a strategic advantage, allowing us to manage deployment and quickly take advantage of changing market conditions. Assuming a consistent build schedule of new equipment, we expect to reach the 50% mark on Frac of the Future deployment during 2015.

We believe these three strategic initiatives will deliver material differentiation and provide a sustainable competitive advantage to Halliburton for years to come.

Turning to the Gulf of Mexico; revenue was impacted by BOP certification related issues that have delayed several of our large completions to the back part of the year. For the remainder of the year, we expect revenue and profit will average higher than the first half, as deepwater rigs arrive and more rigs move to development and completions. We're optimistic about the Gulf of Mexico deepwater market, and are excited about our competitive position in the Lower Tertiary, the market that we expect to nearly double in 2014. We continuously work for ways to better manage our cost structure in the organization.

As we migrate towards more efficient, differentiated service platforms, such as Battle Red and the Frac of the Future, it will have an impact on support and operational headcount as well as equipment and inventory requirements. We expect to complete an evaluation of these areas and to take action on them in the third quarter, which will result in severance and other charges during the quarter. We will be identifying these separately in our third quarter results.

So to summarize North America, we're forecasting the rig count to remain stable for the year, but believe that activity levels can improve as a result of drilling efficiencies and further adoption of pad well drilling. In a flat pricing and rig count environment, cost management is going to be more – to be extremely important, and we anticipate better cost optimization will result from our strategic initiatives. We're maintaining close contact with our customers to better understand their budget plans for the reminder of the year. We want to be clear that we expect North American margins to increase the balance of the year.

Finally, we're committed to growing our international revenues and margins, and achieving a better geographic balance in our business going forward. I think our performance this quarter speaks for the progress we're making on that front.

Now, Mark will provide some additional financial commentary. Mark?

Mark A. McCollum - EVP and CFO: Thanks Jeff, and good morning, everyone. Our corporate and other expense came in at $108 million this quarter, slightly lower than expected due to some insurance reimbursements for legal cost associated with Macondo litigation, as well as decreasing cost related to our corporate initiatives. Approximately $34 million of our corporate costs were for continued investment in Battle Red and other strategic initiatives. The cost of these initiatives will be declining over the next few quarters. We anticipate the impact of these investments will be approximately $0.02 to $0.03 per share after-tax in the third quarter. In total, we anticipate that corporate expenses will average between $110 million and $120 million per quarter for the remainder of the year.

We continue to benefit from the strategic realignment of our international operations completed last year and the continued expansion of our international business. Our effective tax rate this quarter came in at 29%, in line with the low end of previous expectations. We anticipate though that we might see a slight increase to about 29.5% for the third quarter. Our capital expenditure guidance of approximately $3 billion for the full year remains unchanged.

Throughout this quarter, we have continued to pursue in earnest a settlement to resolve a substantial portion of the private claims pending in the Macondo multi-district litigation. However, discussions among the parties to the proposed settlement have recently slowed, while BP challenges certain provisions of their previous settlement with the Plaintiff Steering Committee, including a current appeal in the Fifth Circuit Court.

Now we continue to believe that a reasonably valued settlement is in the best interest of our shareholders. But given the complexity of the current situation among other parties, it is difficult to estimate when, or if the resolution through settlement can be reached.

In the meantime, we'll continue to argue our defense against any liability in the courts. No adjustment to the Macondo reserve was reported during the second quarter. As the MDL trial and other investigations progress, we're constantly monitoring and evaluating developments and it's possible that we may need to adjust our reserve estimate up or down in the future. At this time, our reserve estimate does not include potential recoveries from our insurers. However, we did reach a favorable agreement with a portion of our insurers during the quarter which, among other things, allows us to continue to be reimbursed for our legal cost.

As we communicated in our first quarter call, we intended to be more aggressive in our second quarter common stock repurchase activity. During the second quarter, we upsized our revolving credit facility from $2 billion to $3 billion and used the excess liquidity that transaction created to repurchase 23 million shares of common stock. Last week, our Board of Directors approved increase in the authorization for future share repurchases to $5 billion. We are currently evaluating the best available repurchase methods. This increased authorization, together with the 39% increase in dividends announced in the first quarter is a reflection of our growing confidence and the strength of our business outlook and our continuing commitment to shareholder distributions. Going forward, we believe the Company will generate sufficient cash flows to enable us to grow our business, increase shareholder returns and maintain flexibility to take advantage of any strategic opportunities we've seen.

Now, moving on to our near-term outlook. For our international business, we expect stronger revenues and margins during the second half of the year, but weighted more heavily to the fourth quarter. For the Eastern Hemisphere, we are currently expecting third quarter year-over-year revenue growth to be similar to the second quarter, with a modest sequential improvement in margins. Latin America growth is expected to be muted by the activity curtailment in Mexico, but we should see a moderate sequential improvement in revenue with margins approaching the mid-teens. And for North America, we anticipate a flat U.S. rig count for the third quarter. However, we expect to see the seasonal rebound from breakup in Canada, along with stronger activity levels in the Gulf of Mexico, and we anticipate the net result will be modestly higher sequential revenues and margins.

Now, I'll turn the call back over to Dave for some closing comments. Dave?

David J. Lesar - Chairman, President and CEO: Okay. I know a lot of people were dialing in late, so let me give you a quick summary of what we've said today. The North America, based on improving activity levels in Canada and the Gulf and continued efficiency gains for U.S. land, we expect margins to continue to improve for the balance of the year.

As Mark said, in Latin America, we feel confident that revenue and margins can improve in the second half, with margins approaching the mid-teens in the third quarter. For the Eastern Hemisphere, our outlook remains unchanged. For the full year, we expect revenue growth in the mid-teens, with margins in the upper-teens. And our aggressive buybacks in the second quarter and the increase to our repurchase authorization clearly demonstrate our growing confidence we have in the strength of our entire business outlook. Finally, we have been and will continue to be relentlessly focused on delivering best-in-class returns.

So, with that, let's open it up for questions.

Transcript Call Date 07/22/2013

Operator: Bill Herbert, Simmons & Company.

Bill Herbert - Simmons & Company: Dave, I’m curious and this sort of weaves into Jeff's narrative with regard to the Frac of the Future and Battle Red, but C&P margins in this quarter were actually a pleasant surprise for me. And I'm just curious, in a relatively labored E&P capital spending environment, sure with well count and stage counts increasing, but overall, activity relatively flat range (on) commodity prices as it were and free cash flow generation is still relatively challenged. How high can C&P margins in North America actually go?

David J. Lesar - Chairman, President and CEO: Yeah, I think, Bill, we have always said that we see no reason that in a reasonably robust gas market that we should not be able to achieve normalized margins. And for us normalized margins would be in the mid-20s. And so, obviously, we're going to need help in gas from the gas market. But with the liquids market, I think underpinning sort of how low margins can go and you add to that the efficiencies that we see going on with respect to what we're going to get out of Battle Red and Frac of the Future, I can see a path there. And as I said, we're going to have to get a little help from gas. And obviously, as we go forward into the balance of the year, so we'll get some help from Canada.

Bill Herbert - Simmons & Company: With regard to your prophecy for, I believe, full year margins for Eastern Hemisphere in the high-teens. The only part of that equation which looks still somewhat ambitious to me relative to first half margins is Europe/Africa/CIS, which given what we did in the first half implies a relatively vigorous rate of improvement in the second half of the year and what exactly is the roadmap for margin improvement in Europe/Africa/CIS as the balance of the year unfolds?

David J. Lesar - Chairman, President and CEO: Bill, I'll let Jeff handle that one.

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: Part of that that path is kind of the pick up across Europe. We saw improving activity kind of through Scandinavia, we talked about project wins there, so that's certainly to the positive. We also see kind of the Sub-Saharan activity picking up around the pre-salt. So, we see a path to improving margins in the back half. But certainly the North Sea improving is a positive and then also our activity in Russia should improve as well.

Operator: Jim Wicklund, Credit Suisse.

Jim Wicklund - Credit Suisse: The $32 million, Mark, in the quarter for the improvements in supply chain and all, the continued improvements in Battle Red; I think Battle Red was supposed to go out this quarter and you are talking about being implemented in Q1. You guys have spent a lot of money doing this, and so we assume that's an investment. And so how long do you think it will take to recoup the investments you've made and when does that quarterly investments start to approach zero?

Mark A. McCollum - EVP and CFO: Well, the Battle Red project, there are various elements of it that are rolling out each quarter as we go. So we talked about that. We expect the whole project to be completed by the first quarter of 2014. But there's some fairly critical elements that have already rolled out, like timekeeping and things of that nature. There are elements that will begin to roll out even this quarter – in this next quarter, third quarter; that will have an impact. We’ve tracked it – we've looked at the cost very carefully. As Jeff said, most of Battle Red is really around working capital and cash. But there is some fairly large savings in terms of headcount as well. We’re going to give more data for all of you when we have our Analyst Day in November along all these projects and more specific information about the savings that we see. But just suffice to say, we're pretty excited about what we see right now. Believe very much in these projects and what they will deliver, and I think you will be pleasantly surprised when we give that data as well.

Jim Wicklund - Credit Suisse: I love being pleasantly surprised; it’s one of my favorite things, Mark. A follow-up question. In the U.S., the concern still exists that – we all know that rig count isn’t a very good denominator anymore, and even that said, we don’t have a lot of confidence in wells and footage because it’s not reported very well. How much is rig efficiency running? How much is service intensity running? With a flat rig count in the second half of the year, how much can you really grow revenues? Is that a 5% number? Is that a 10% number?

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: Yeah, I think we’re still kind of at a leading edge, Jim, with respect to the amount of pad drilling. In fact, anecdotally, when we talk to operators, they would describe what’s been done until now as drill and hold, and arguably a bit of exploration. Even some really big operators have said that they were waiting to really go full-on development. So, we've seen probably upper – we've seen upper single-digits type improvement in terms of efficiency even in the current year. That's on the back of double-digit efficiency gains last year. So, yeah, I expect there is still headroom to grow around that scenario.

Operator: Angie Sedita, UBS.

Angie Sedita - UBS: Really very good to see the continuation of the above peer group growth rates in international revenues and operating income. What drove you essentially modestly increasing your Eastern Hemisphere margin guidance from essentially the mid-teens to now the high-teens? Were there specific regions or countries that appear to be a bit better than you originally expected?

David J. Lesar - Chairman, President and CEO: A lot of that still is on the back of what we've seen in Asia. I mean, we've really come on strong in Asia. We’ve seen the kind of growth throughout the region and have no reason to believe that necessarily that abates. Key contract wins last year; we’re seeing those get started and grow into their – grow into the types of margins we were expecting out of those and then we follow those up with a few more wins.

Angie Sedita - UBS: So predominantly stemming from Asia, fair enough?

David J. Lesar - Chairman, President and CEO: Yeah, fair enough, yeah. Certainly, leading in Asia.

Angie Sedita - UBS: Then as a follow up, (indiscernible) related follow-up, on U.S. pressure pumping, I believe you're essentially the only company that's near 100% utilization. In prior conversations you indicated that you believe that the rest of the market could become balanced by early 2014 and absorb this 20% overhang. Do you still believe that timeline or is that beginning to be a bit pushed out?

David J. Lesar - Chairman, President and CEO: I think that timeline is beginning to push out just a little bit and that's on the back of what we've seen in terms of the overhang that's still there. Though the thesis we stay with in terms of, sort of, the longer things go, cannibalization starts to occur of equipment in the market. So, I still believe there is the ability to consume the overhang ratably over time, but don’t see that as necessarily a Q1 '14 event.

Mark A. McCollum - EVP and CFO: I think when we initially made that forecast, our expectations about rig count growth for the year, Angie, were a bit higher. As you've heard, we are moderating that a bit and sort of assuming that going forward with a flat rig count. Efficiency levels will run higher, rig count lower. I think the combination of both, sort of says it will probably have a little bit more – a little longer overhang in this pressure pumping market.

Operator: Waqar Syed, Goldman Sachs.

Waqar Syed - Goldman Sachs & Co.: Your margins and revenues in the D&E side for North America were a touch lower. Is that all primarily Canada, or is there some pricing there as well? And then what’s the outlook for the remainder of the year in D&E?

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: A lot of that is Canada. That’s a good D&E market for us, and obviously with the rig count and break-up slowdown, we feel that more so. Have we seen some pricing pressure? There has been some pricing pressure in those other service lines. But again, the efficiency of the drilling activity, taking that out, would be, again, primarily Canada.

Waqar Syed - Goldman Sachs & Co.: So margins should go back to the 18% kind of level in the second half in North America D&E?

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: Maybe a little bit softer than that, but that's directionally the right way.

Waqar Syed - Goldman Sachs & Co.: Now, in the Bakken there was some disruption activity in the second quarter and the completion activity was delayed because of the rains. Did you experience that or – because that's a pretty large market for you guys, or not?

David J. Lesar - Chairman, President and CEO: Yes, we did. I mean, we had a bit of impact from that. The weather never helps us through the spring in that market, and even in Canada, there was a follow-up to breakup with the flooding that happened in Calgary. So it was a bit of a tough spring throughout that area. Certainly don’t expect that to repeat in the second half.

Operator: James West, Barclays.

James West - Barclays Capital: Jeff, last quarter, you had alluded to – in North American stimulation that you guys were going to seek some pricing increases, as you renegotiate the long-term contracts. It seems like you're kind of pushing out when the industry there comes back into balance. But curious if that still is your intention, and as we get into your rollover season here, what the feedback has been from your customer base?

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: So, let me clarify in terms of the discussions we're having with clients, better wells are still very important. So that plays to our strength in terms of designing, custom chemistry for the best production, the subsurface insight that allows us to design the best producing wells. So those continue. But as we said, we continue to see some pricing pressure certainly variable across different basins. So, I guess the pricing pressure doesn't go away as long as there is the overhang out there of excess equipment. But I think our technical ability to sell into those contracts is still very good.

James West - Barclays Capital: Then maybe just a follow up on international pricing from me. Dave, you mentioned in your comments that it was still – the gains were still elusive, but it seems like it's the bad behaviors out of the market now but your competitors are at least getting somewhat more constructive. I’m curious on why you think given the rate of growth that you're seeing and that your (competition) is seeing that why that pricing pressure – is there – pricing power is still elusive?

David J. Lesar - Chairman, President and CEO: Well, I think, James, a couple of reasons. One is that the price in some of these tenders in the international markets are still so large in terms of revenue stream and duration that everyone tends to sharpen their pencil when they tender and price these things. And number two, the ones that were tendered and launched several years ago, all had upsell and new technology strategies in them, all of which take a while to work their way through. So as I said, at this point in time, I think our focus is on increasing margins through better utilization, more efficiency. We've not seen a pricing inflection point even with increased spending because customers are really pretty much taking us slow and steady in terms of their increase and typically slow and steady doesn’t lend itself to a major pricing inflection point, because all of a sudden a lot of capacity is stripped out of the market. So, as I said, the international market is playing out almost exactly as we saw it and I believe we've got a pretty good handle on what's going to happen over the next couple of quarters.

Operator: Kurt Hallead, RBC Capital Markets.

Kurt Hallead - RBC Capital Markets: Just wanted to clarify; get some clarification on one thing. I think, Dave, you mentioned that there is going to be – the Eastern Hemisphere is going to be driven by Saudi and Asia. Then I think there was a question earlier about the margin improvement, and I thought I heard that was being driven mainly by Norway and Sub-Saharan Africa. So I guess my question is, can you give us some update on what you expect in terms of potential margin improvement contribution from the Middle East to that Eastern Hemisphere dynamic? Is that primarily coming out of improving profitability out of Iraq, or is it coming from improved activity in Saudi?

David J. Lesar - Chairman, President and CEO: I think, Kurt, Jeff was responding to a question specifically on why the – our Europe, Africa, Russia operation was improving its margins, and I think his discussion on Norway, Continental Europe, North Sea was reflective of that. If you sort of pull all the way back in terms of the Eastern Hemisphere, even though we're proud of our operation in Europe/Africa/CIS, the action really is in the Middle East/Asia right now. So, our Middle East operations will continue to expand. We're really happy with what we have going in Saudi, our operations in Iraq have stabilized. Then as Jeff has mentioned, almost all the way across Asia, we're seeing great success. So, we're really happy with our Eastern Hemisphere portfolio right now. We haven’t mentioned some of the African countries, but they continue to do better. So overall, I think that across the board, we're happy with where we are and Eastern Hemisphere, it’s just that some are driving forward a little bit faster.

Kurt Hallead - RBC Capital Markets: Thanks, David. Then the follow-up to that, with respect to Iraq, do you have a general timeframe as to when you think Iraq may become neutral or net neutral to your Middle East/Asia margins?

David J. Lesar - Chairman, President and CEO: It’s neutral now. In fact, it was breakeven last quarter, slightly profitable. It’s more profitable this quarter. We're little positive on the outlook for Iraq. I think it will be a little bit slower and more measured as we go forward, but certainly more profitable.

Operator: Brad Handler, Jefferies.

Brad Handler - Jefferies: Could you guys just speak a little bit more specifically to what’s happening in Egypt from your business perspective?

David J. Lesar - Chairman, President and CEO: Yeah. Obviously, it’s not going and hitting on all cylinders at this point in time. The customers have dialed back a little bit. One of the big issues we have is because of the concerns the government have, the ability to move around in the desert has been somewhat hampered, especially the ability to move explosives around; and obviously, explosives are key to our business in terms of completing the wells. So that’s just made the logistics of doing our operation there a little bit more difficult. But it hasn’t been shut down, but it clearly has been ratcheted back and obviously when you ratchet back, and the revenue and add a logistical cost, it really starts to impact your margins more than it impacts your revenue.

Brad Handler - Jefferies: But you – alright, so you have kept all the crew and, whatever, expat crew is in country and…

David J. Lesar - Chairman, President and CEO: Yeah, we have actually very, very few expats in a place like Egypt. But we have maintained our crew, that’s correct.

Brad Handler - Jefferies: An unrelated follow-up, Mark, what was the shares outstanding at the end of 2Q?

Mark A. McCollum - EVP and CFO: That’s a great question. We had 917 million shares outstanding at the end of the quarter. The part – when you're trying to do the averaging through the quarter, right, most of the $1 billion share buyback happened in May and June, and so the averaging effect had a little bit different effect.

Operator: Doug Becker, Bank of America.

Doug Becker - Bank of America-Merrill Lynch: Jeff, I think you indicated 50% of the frac fleet will have the Q10 pumps by the end of 2015, which I think implies about 50% conversion of the fleet over three and a half years, give or take? Ultimately, just trying to gauge if it's reasonable to assume that the full fleet would be converted in a total six to seven years, kind of a similar environment to what we’ve seen over the last couple of years. And if everything fell into place, how quickly could you have the Q10 pumps in all on the entire fleet?

David J. Lesar - Chairman, President and CEO: Yeah, Doug, that's the right pace. We expect to be by '15 at about half. But what I would say is costings that we’re doing is sort of ratably as the market allows and as equipment as they’re taken outside the U.S., equipment retirements occur. But we have continued to retire equipment in order to get the equipment into the field. So, that’s the right pace, kind of in the five to six-year pace, but that would to a certain degree be limited by market, and that we wouldn’t get over our skis if the market didn’t allow it.

Doug Becker - Bank of America-Merrill Lynch: How quickly could you – $5.50 gas, international and conventionals are ramping up, how quickly could you in the perfect scenario?

David J. Lesar - Chairman, President and CEO: Very quickly. I mean that’s – my reference to our manufacturing capability allows us really to turn more quickly than probably anyone in the marketplace around bringing equipment forward. So, we would love to have the opportunity to do that.

Operator: Dave Anderson, JPMorgan.

David Anderson - JPMorgan: Dave, in your prepared remarks you mentioned something about 50% of drilling in the U.S. is on pad drilling. I was little surprised by that number. It seems a little higher than I was thinking. Was that a number for Halliburton? And if so, can you just tell me where do you think that number goes, say, by the end of '14?

David J. Lesar - Chairman, President and CEO: No. The number, Dave, that’s our view of where the market is today not just for Halliburton. I think that as we've tried to allude over the last couple of quarters, I think the people that are analyzing our industry have got to move away from rig count. They've got to move away from well count, and really look at sort of horizontal footage drilled. Given the position that we have in the U.S. and given what we see out there, we think that basically the pad drilling is 50% or so. The other thing that you see is pad sizes are getting much larger, and that just drives more efficiency and more service intensity.

David Anderson - JPMorgan: I was just wondering if you can help me quantify this impact. Like let’s just say you take five wells on pad drilling versus five wells kind of standalone? How would you think that your margins should be different between those two wells, or is that going to reduce cost or whatever the best way to measure that impact is?

David J. Lesar - Chairman, President and CEO: The margins are better on the back of the number of turns we get on the equipment. So, for a rig up on a single location, we have even particular equipment that allow us to move from wells to wells without having to move the equipment at all. So, if we think in terms of start to finish or time between wells, we're just working more on a pad, and the larger the pad, the more we work as opposed to rigging down and moving away to somewhere else.

David Anderson - JPMorgan: So is that like a 20% to 30% increase in margins, something on those lines?

David J. Lesar - Chairman, President and CEO: Well, I think, obviously we know what that amount is, but we’re not going to tell the world.

Operator: Jeff Tillery, Tudor Pickering Holt.

Jeff Tillery - Tudor Pickering: The discussion around Q3 North American outlook saw top line growth being driven by Canada and Gulf of Mexico coming back, but you had implied that the U.S. land business kind of trajectoring through the course of Q2 was pretty flattish. Is that correct? I guess, one of my questions.

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: No, for Q2, we saw improvement in North America land, again, offset by those other items. So, no, I wouldn't infer that.

Jeff Tillery - Tudor Pickering: So was that improvement – so April through June; that was better than the March exit rate? I guess, it was…?

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: Yes. Yeah, on a stage count basis, we’re seeing an improvement. So we’re back kind of consistent with what we saw middle of late last year – middle sort of third quarter-ish of last year. So, we are seeing the activity rebound.

Jeff Tillery - Tudor Pickering: Then the unrelated follow-up question I had is just around Latin America. So in this, we see the revenue improving in the second half of the year, if I was to put kind of bounds around what's reasonable, is it fair to think on a low side case, a revenue growth of 5%, high side case of 10% full year in Latin America year-over-year?

Jeff Miller - EVP and COO; and Chief Health, Safety and Environment Officer: I think your 5% number is pretty good.

Operator: Scott Gruber, Bernstein.

Scott Gruber - Sanford Bernstein: Given a more temporary outlook here for rebalancing of the pumping market, I assume you're not considering expanding the size of your U.S. pumping fleet during the first half of '14. I assume that's correct because you didn't increase your CapEx for the second half of the year?

David J. Lesar - Chairman, President and CEO: No, that'd be correct. Our expectation is to kind of stay where we are.

Scott Gruber - Sanford Bernstein: Then how do you think over the medium-term about that choice between continuing to improve margins, which is clearly the goal today and the opportunity to take share in the U.S. market? Personally, I think that the U.S. market should be a good market over the medium-term as the industry moves to monetize cheap natural gas. Are you thinking about a certain margin level that you want to get to before you start adding capacity in above your cost of capital today? Is it getting back to this normalized margin or we should think about before you start increasing your CapEx?

David J. Lesar - Chairman, President and CEO: Well, we always start with returns first. So everything that which is in this business is around returns and so as long as we are happy with our returns and we are getting equipment to works, we wouldn't take share at the expense of returns. I really don't know that – I mean, on the back of the things that we are dealing with Battle Red and Frac of the Future, I don't see those few things as mutually exclusive. Some of the systemic things we're doing allow us to grow share even with the equipment we have or with the same level of equipment that we have.

Mark A. McCollum - EVP and CFO: Yeah. I think there are two things to consider, Scott, one is that with pad drilling in the efficiencies that our equipment is working today. As we look at it, you are creating effective utilizable space on a calendar, as we work faster and more efficiently. The second thing, which is I think, unique to Halliburton, remember, we are retiring equipment as we roll out our Frac of the Future. But that equipment was working today, still viable equipment and right now, because we don't see the need for excess equipment, we're parking it possibly destining that equipment for our international operations along the way. But if the right opportunity present itself along the way we have the ability to redeploy some of that equipment back into the U.S. market or not pull it out of service in order to capture share when we see that we have an opportunity to continue to get very good returns and work for the right customers in the right basins with the right technologies.

Operator: Robin Shoemaker, Citi.

Robin Shoemaker - Citigroup: I wanted to ask about Mexico – go back to Mexico for a minute. The contract that you won in Chicontepec, I believe you talked about cost recovery and then I think there is a fee per barrel arrangement after that. So, can you describe exactly how that works and why there was – why you believe there wasn't a much broader interest among oil service companies in these Chicontepec blocks?

David J. Lesar - Chairman, President and CEO: Yeah. The cost per barrel or the fee per barrel is really the smaller piece of that type of project. Really, it's a situation where we provide services into the project and then earn cost recovery to get paid at what we believe are certainly accretive margins to our business. I think the interest by others, I can't say what others were necessarily interested in or not, but I would say that this is very difficult work. It takes a lot of reservoir inside in order to determine which fields and how to produce them over time and a full suite of services that it takes to do all of that work. So, we won the Humapa that we won. We are really comfortable with where we are and really the last thing that prevents our broad group from going into that is quite frankly the capital upfront that's required to embark on these types of things.

Robin Shoemaker - Citigroup: So, on these (in-grade) projects that you described that are coming up in Mexico, are some of these projects that will involve sort of high-end technologies, or are these going to be really very competitive types of tenders?

David J. Lesar - Chairman, President and CEO: Well, this will be both. I think it's a combination. What we're describing are all of the integrated drilling, not like the incentivized rounds that we just finished talking about, but drilling wells for PEMEX in a lump sum type fashion, and those range from some more simple to some that are actually quite complex. And so, I think we'll see competitive – it will be competitive just given the size of the activity, but the type of technology required, I do think will be important as those projects are led.

Operator: Thank you. And at this time I'd like to turn the call back to management for any closing remarks.

Kelly Youngblood - IR: Okay. Thanks everybody for your participation. We'll be doing follow-up calls over the next couple of days. Sam, with that, you can go ahead and close the call.

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