Halliburton Company (HAL) — Q3 2022 Earnings Call Transcript

Hello. And thank you for joining the Halliburton third quarter 2022 conference call. We will make the recording of today’s webcast available on Halliburton’s website after this call. Joining me today are Jeff Miller, Chairman, President and CEO; and Eric Carre, EVP and CFO. Some of today’s comments 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, 2021, Form 10-Q for the quarter ended June 30, 2022, 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. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our third quarter earnings release and in the quarterly results and presentation section of our website. Now I will turn the call over to Jeff.

Thank you, David, and good morning, everyone. Our outlook today is strong, oil and gas supply remains tight for the foreseeable future, International market activity is accelerating and North America service capacity continues to further tighten. As a result, pricing is moving up in both markets. Halliburton’s strong third quarter results demonstrate the power of our strategy. Here are some highlights. Total company revenue increased 6% sequentially as both North America and International activity continue to expand. Operating income grew 18% compared to adjusted operating income from the second quarter with improved margin performance in both divisions. Our overall operating income margin was 16% representing 45% incremental margins over last quarter’s adjusted operating income. Our Completion and Production division revenue increased 8% over last quarter, driven by completions activity and pricing in North America and International markets. C&P delivered operating margin of 19% in the third quarter. The Drilling and Evaluation division revenue grew 3%. Operating margin of 15% increased 140 basis points sequentially and 380 basis points above the same period last year, demonstrating the earnings power and global competitiveness of our D&E business. North America revenue grew almost 9% sequentially as both drilling and completions activity improved throughout the third quarter. Pricing gains and activity increases across both divisions drove these results. International revenue grew 3% sequentially with improved activity in the Middle East and Latin America that more than offset the revenue decline related to exiting our Russia business. Importantly, during the third quarter, we generated similar incremental margins in both international and North American markets. Finally, we generated free cash flow of $543 million and retired $600 million of debt during the quarter. I am pleased with the third quarter results. I want to express my appreciation to the men and women of Halliburton whose hard work and dedication made these results possible. Your commitment to collaboration, safety and service quality every day makes Halliburton successful. Turning to our macro outlook. Oil and gas supply remains fundamentally tight due to multiple years of underinvestment. This tightness is apparent in historically low inventory levels, production levels well below expectations and temporary actions such as the largest ever SPR release. Against tight supply, demand for oil and gas is strong and we believe it will remain so. While broader market volatility is clear, what we see in our business is strong and growing demand for equipment and services. There is no immediate solution to balance the world’s demand for secure and reliable oil and gas against its limited supply. I believe that only multiple years of increased investment in existing and new sources of production will solve the short supply. The effective solution to short supply is conventional and unconventional, deepwater and shallow water, new and existing developments, and short and long cycle barrels, all of it. I expect progress towards increased supply will be measured in years, not months as behavior of both operators and service companies have changed. Operators remain disciplined. Their commitments to investor returns require a measured approach to growth and investment. Service companies follow the same discipline, delivering on their commitments to investor returns and taking a measured approach to growth and investment. What I think is underappreciated is how this results in more sustainable growth and returns over a longer period of time. Let’s turn now to Halliburton’s performance, starting with the International markets. Our third quarter performance demonstrates the strength of our strategy to deliver profitable International growth through improved pricing, selective contract wins and the competitiveness of our technology offerings. International revenue in the third quarter for the C&P and D&E divisions grew year-over-year from a percentage standpoint in the high teens and mid-20s, respectively, which outpaced International rig count growth and reflects our competitiveness in all markets. Our year-over-year growth and the margin expansion demonstrated by both divisions give me confidence in the earnings power of our International business... ...Looking forward, I see activity increasing around the world, from the smallest to the largest countries and producers. I expect the areas of strongest growth will be the Middle East, led by Saudi Arabia, but with meaningful activity increases in the UAE, Qatar, Iraq and Kuwait. Elsewhere, Brazil, Guyana and many others have also signaled a commitment to increased activity. Throughout these markets, I am pleased with the broad adoption of our new directional drilling platform such as iCruise and EarthStar. Importantly, these broad-based activity increases serve to tighten equipment availability and drive price increases in our International business. Shifting to North America, we had a fantastic quarter. Our solid performance demonstrates our strategy to maximize value in North America. We achieved this through improved pricing, partnering with high quality customers and differentiated technology. Our revenue grew 9% sequentially and is up 63% over the third quarter last year. Pricing continues to improve across all product lines and completions equipment remains extremely tight across the market. Interest in eFleets is strong and customers are pleased with the superior efficiencies, operational uptime and reduced carbon footprint of our market-leading solution. Looking into 2023, I see continued growth. The inbounds for calendar slots are stronger than I have ever seen at this point in the year. More importantly, I see increased demand for a limited set of equipment and an environment where technology and performance are increasingly valued, all perfectly set up for Halliburton to maximize value in North America. Market consolidation, competitors that answer to public investors, disciplined customers and supply chain constraints, all drive the services market that I expect to remain tight for the foreseeable future. Halliburton will continue to outperform in this market. Our best-in-class Zeus eFleets have pumped over 20,000 hours for customers. Our eFleet customers know that they have a field-proven technology, which carries the full weight of Halliburton’s expertise to build, run and optimize this next-generation equipment. Additionally, our SmartFleet intelligent fracturing system continues to gain traction and we expect an almost eight-fold increase in stages completed this year. SmartFleet gives customers unparalleled access to data about where and how their fractures permeate, the potential for frac hits on adjacent wells and the real-time data necessary to improve completion designs. In all markets, Halliburton’s strong financial performance demonstrates its strategy and action, profitable international growth, maximizing value in North America and improved asset velocity to deliver value for our shareholders today. These strategies equip us to outperform under any market conditions, but especially to maximize returns through this up cycle. Execution is at the heart of Halliburton’s identity. We collaborate and engineer solutions to maximize asset value for our customers. You have seen that in action in today’s results. You can hear how excited I am about Halliburton’s future all around the world. The structural demand for more oil and gas supply provides strong tailwinds for our business and Halliburton is ideally positioned to deliver improved profitability and increased returns for shareholders. Now I will turn the call over to Eric to provide more details on our third quarter financial results. Eric?

Thank you, Jeff, and good morning. Let me begin with a summary of our third quarter results. Total company revenue for the quarter was $5.4 billion, a 6% increase over the second quarter, while operating income was $846 million, an increase of 18% over second quarter adjusted operating income. Globally, higher activity and pricing improvement supported these strong results. Operating margin for the company was 16% in the third quarter, 164-basis-point increase over second quarter adjusted operating margin and 393 basis points over adjusted operating margin in the third quarter of 2021. Our third quarter reported net income per diluted share was $0.60, an increase of $0.11 or 22% from second quarter adjusted net income per diluted share and more than doubled the adjusted net income per diluted share for the same period last year. Beginning with our Completion and Production division, revenue in the third quarter was $3.1 billion, an 8% increase when compared to the second quarter, while operating income was $583 million, an increase of 17% when compared to the second quarter. These results were driven by increased pressure pumping services, primarily in North America land and increased completion tool sales in Middle East Asia. In our Drilling and Evaluation division, revenue in the third quarter was $2.2 billion, an increase of 3% when compared to the second quarter, while operating income was $325 million, an increase of 14% when compared to the second quarter. These results were driven by improved drilling-related services in Latin America and Middle East Asia, and increased project management and wireline services internationally. The exit from our Russia business negatively impacted financial results for both divisions. Moving on to geographic results, in North America, revenue in the third quarter was $2.6 billion, a 9% increase when compared to the second quarter. This increase was primarily driven by increased pressure pumping services and drilling-related services in North America land. These increases were partially offset by decreased activity across multiple product service lines in the Gulf of Mexico. Latin America revenue in the third quarter was $841 million, an 11% increase sequentially, driven by increased well construction services and project management activity in Mexico. Europe Africa revenue in the third quarter was $639 million, an 11% decrease sequentially, almost all of this reduction was related to exiting our Russia business. Middle East/Asia revenue in the third quarter was $1.2 billion, a 6% increase sequentially and primarily resulting from increased completion tool sales in the Arabian Gulf and higher drilling services activity in Saudi Arabia and Southeast Asia. In the third quarter, our corporate and other expenses were $62 million, which was in line with expectations. For the fourth quarter, we expect our corporate expense to be up slightly or roughly in line with second quarter. Net interest expense for the quarter was $93 million, a slight decrease due to higher yields on cash balances. For the fourth quarter, we expect this expense to decrease slightly due to lower debt balances. Other net expense for the quarter was $48 million, primarily related to currency losses driven by the strength of the U.S. dollar. For the fourth quarter, we expect this expense to remain approximately flat. Our normalized effective tax rate for the third quarter came in at approximately 22%. Based on our anticipated geographic earnings mix, we expect our fourth quarter effective tax rate to increase slightly. Capital expenditure for the third quarter were $251 million. We expect our full year capital expenditure to be in line with our target of 5% to 6% of revenue. Turning to cash flow, we generated $753 million of cash from operations and $543 million of free cash flow during the third quarter. We expect full year free cash flow to be in the range of last year’s free cash flow. With the latest payment of $600 million, we have now retired $2.4 billion of debt since 2020. We are quickly approaching our near-term leverage target of 2 times gross debt-to-EBITDA. Given our balance sheet position and strong outlook, we now have greater flexibility to increase the cash we will return to shareholders through dividends and/or share buybacks under our existing repurchase program. Now let me turn to the near-term outlook. In the Completion and Production division, we expect fourth quarter revenue to grow in the low-to-mid single digits and margins to improve 50 basis points to 100 basis points. In the Drilling and Evaluation division, we expect fourth quarter revenue to grow in the low-to-mid single digits and margins to improve 75 basis points to 125 basis points.

Thanks, Eric. Let me summarize our discussion today. Halliburton’s third quarter financial performance shows our strategy in action, delivering value for our shareholders. Oil and gas supply remains tight, requiring multiple years of investment. Demand for Halliburton services is strong. We will continue to execute on our strategic priorities that drive free cash flow and returns for our shareholders. And now, let’s open it up for questions.

Hi. Good morning, Jeff.

Good morning, Dave.

So for the first question on U.S. land, we often hear about budget exhaustion this time of year, but you are indicating that you are experiencing stronger inbound activity than ever as we approach year-end. I'm interested in how these inbounds have evolved. Are they primarily coming from public E&Ps rather than private companies? Additionally, are these customers looking for term contracts given the limited availability of equipment, and does that result in a premium?

We are definitely not experiencing budget exhaustion. We remain sold out through the end of this year and into next year. The market is strong and activity continues to be robust. As we assess the types of inquiries we're receiving, there's a noticeable trend towards larger companies, as they want to ensure they have the necessary equipment for 2023. In North America, the more work being done translates to increased production, which aligns with our current experience. There is a desire for longer-term agreements; we do have those options, but we also provide flexibility around pricing. It’s clear to us that 2023 will be very tight in terms of equipment and repair parts, so I'm very optimistic about the outlook for 2023 in North America.

That makes sense. I locked in term right here. Shifting over to the Middle East, you mentioned increased project management in the region. I was curious if you could consider all those projects collectively. Where do we stand on the overall ramp-up? Are we about halfway there, or are we closer to being fully ramped up? Additionally, once you achieve this ramp-up in project management, is there potential for another growth phase with more tenders, or will it likely involve follow-on work or upselling of these contracts? It has been some time since we have seen an upturn in project management in the Middle East.

Look, I think that really hasn’t even begun in my view. I think we are just getting underway in terms of some of the bigger projects, discrete work starting. But I think we have got a long way to run internationally and in the Middle East in particular. And this is all consistent with sort of my earlier look on the macro in terms of, we didn’t get here overnight. We got to where we are from a supply standpoint over eight years to 10 years and that’s the kind of time frame that it takes to solve for. And I think the Middle East broadly takes a long view of this business, and as a result, when they are getting traction now, but it’s not a knee-jerk reaction. It is a methodical march towards reserve extensions and adding reserves, which takes time and money, and so I am super encouraged about the outlook in the Middle East.

Thanks, Jeff.

Hey. Good morning, Jeff and Eric.

Good morning, James.

Good morning, James.

So, Jeff, I wanted to dig in a little more on the International business, obviously, this quarter had some mixed results just given Russia coming out. But Halliburton as a company as at least I understand it and certainly you can elaborate on this, but you have spent the last the better part of the last three decades really building out a superior International franchise and one that should be competitive with your major peers or your major competitor here. Is there any reason that we should think that you would underperform or that you would outperform over the next several years in the International arena, given the outlook is as strong as kind of you are alluding to and certainly what we see in the market. We start with the Middle East, if you want, but there’s also many other regions that are going to be showing really substantial growth. I am just curious kind of how Halliburton is set up for that?

Thanks, James. Look, we are extremely well set up for International expansion and have outgrown many quarters in the past and expect to continue to do so into the future based on our technology portfolio and our footprint internationally. Just for some context, Halliburton grew 21% internationally year-on-year, while exiting Russia this quarter, and of course, this is the quarter in Russia, where we typically see the pre-winter sort of step up in the 15% range, so that wasn’t there. But we are seeing strong growth and expect to continue to see that internationally. I think also important to recall, I mentioned in my comments, was the strong international incrementals, which were basically on par with North America, which continues to demonstrate not only growth but margin expansion internationally. If I look ahead internationally, we are only halfway through our iCruise deployment.

Right.

I think that all of that left to do. So I feel, like I said, really good, our production business is new and on plan and so I expect to continue growing revenue internationally and expanding margins. So I feel really good about our international outlook, actually better than I ever have.

Okay. Well, that’s a very strong statement. And perhaps to follow up on that, on the D&E side, which is an International bias, you are kind of hitting margin targets that we were anticipating for next year. So you are kind of already there. And do you think and as you see the outlook and I know you may not want to get bogged down in specific numbers, but how do you see that progression as we go through the end of this year and 2023?

I expect to continue to see improvement. We are in the right markets with a highly competitive portfolio. All service lines are contributing to that. Regarding our D&E business, I've consistently stated that we have been making significant investments there, and I started mentioning this four years ago, and it has continued every year.

Right.

We aimed to achieve better margins on top of existing margins, considering that there are fluctuations throughout the year due to weather and other factors. Ultimately, our strategy is to keep progressing towards improved margins, which you can observe. As I mentioned before, if we are only halfway through the deployment of what I believe is our flagship technology in D&E, I expect we will continue to achieve those better margins.

Right. Got it. Okay. Thanks, Jeff.

Yeah. Thank you.

Yeah. Good morning, Jeff. I wanted to talk…

Hi, Arun.

Could you provide an update on your progress in growing house leverage toward the production phase of the oil and gas life cycle instead of just focusing on drilling and completion? Additionally, how do you view your potential to increase your share in areas like lift and chemicals?

I feel good about our progress. Everything is moving ahead as planned, and we continue to expand. We are still in the early stages of our international expansion, so think of it as the second inning. It's unfolding just as we anticipated. We are growing our presence in the Middle East with both lift and chemicals. This month, we started our first full-scale production run in the chemicals sector, which is an important milestone, though there's still much work ahead. The infrastructure is set up, we are accessing the market, and making sales. The lift segment is performing exceptionally well in North America, and we are using the same technology internationally. Our team is focused on profitable market entries and growth, and we are witnessing that in Latin America and the Middle East.

Great. And maybe just a follow-up for Eric. Eric, you highlighted your leverage target of 2 times. A number of your peers have announced some return of capital announcements at Liberty-Halliburton campaign. I was wondering if you could share more thoughts on how you view return of capital after reaching your deleveraging target and how you are considering future dividend growth versus buybacks?

Right. So, thanks, Arun. So what we have said for the last couple of years is that, our priority number one was really to get our balance sheet in order. So with the $600 million that we have retired in Q3 that puts us at about $2.4 billion retired since 2020, $1.2 billion retired this year alone. So if you combine that with our improved business performance for all practical purposes, we are at our target and considering as well our positive outlook we see no reason for that to change. So really big picture we are starting to turn our attention now to returning more cash to shareholders. So we are working through scenarios. We are engaging our Board. So, more details to come.

Great. Thanks a lot.

Good morning, everyone. I want to discuss margins. Looking back at your pre-shale margins, particularly from 2011 and even back to 2006 and 2008, you were achieving mid-to-high 20% EBITDA margins. Currently, you're in the low 20s. Jeff, could you explain what would need to happen to reach those previous margin levels and if you believe it's feasible to get back to that point in this cycle?

Look, I think the key thing about this cycle is its duration and it’s the right kind of cycle from a duration standpoint that I think we grow into better margins as we continue forward. So I am not going to try to put a date or a time. But my expectation is the duration of the market, sort of the behavior that I described to both operators and service companies, which is absolutely rational in terms of returning cash to shareholders, which is what Eric just talked about. This is the kind of cycle where we are able to do that and I think setting up for margin improvement, the EBITDA strengthening, all of those are the things that create the free cash flow. And I think that historically, actually, I really haven’t seen the cycle set up where we have got short supply the way that we do and the sort of runway that I see in front of us and all of the right sort of motivation by the industry. I think energy is a fantastic industry and I think what you are going to see is the demonstration from the entire industry of what returning cash to shareholders and generating meaningful returns look like over a good cycle, long cycle.

Yeah. Perfect. Just to follow-up on International markets. Could you just talk about how tight the markets are today, what kind of pricing momentum that you are seeing and when you think about idled or spare capacity across international markets, at least for Halliburton, do you see an opportunity to continue to kind of mobilize the tighter markets or do you have a lot less spare capacity and what did that mean for CapEx for next year on the International side?

From a capital expenditure perspective, we are currently investing 5% to 6% of our revenues. Our strategy involves allocating capital to the most promising opportunities, particularly in international markets that show significant potential. It's important to note that we're observing a resurgence in customer urgency, where the quality of equipment is crucial. The market is indeed tight, and there doesn’t seem to be much spare capacity globally. Reflecting on our strategic goals of achieving profitable growth internationally and enhancing asset velocity, we have integrated asset velocity into our operations, allowing us to achieve more with fewer resources than ever before. This confidence in our capital spending is driven by the type of equipment we are deploying in the market, which is designed to be more mobile, operate longer, and can be repaired more quickly. These factors collectively make us a more effective international business.

Okay. I appreciate the color. I will turn it back over. Thanks, Jeff.

Yeah. Thanks.

Good morning, team. The first question is about North America. You mentioned ongoing revenue growth in that region and an increased demand for a limited range of equipment. Could you elaborate on what those specific pieces are? What types of equipment are we discussing, and how do you view the potential for adding frac capacity? Is there a market demand for it as we look ahead to 2023?

The activity we're observing can be described as increased service intensity, which involves more operational time on equipment and higher throughput. We're also seeing increased drilling activity in the U.S., particularly related to drilling and completion services, especially fracking. As these services operate more intensively, they generate greater value for us. Our main focus is on maximizing value in North America while also profitably expanding internationally. This naturally influences our spending and market strategies. In North America, we assess our capacity primarily through eFleets, which I don't see as just capacity but rather as a replacement strategy over time. Current discussions around eFleets are not immediate but focus on late 2023 to 2025 for potential additions that will eventually replace existing equipment. I'm quite optimistic about the market's direction; it's currently very tight, particularly concerning repair parts and other resources. We've all noted supply chain bottlenecks, but I believe these challenges will resolve in the near term. Overall, North America is experiencing tight conditions.

Yeah.

...could be added in a meaningful way even if it was desired.

Yeah. That’s great perspective. And then just some early thoughts on 2023 in terms of what you are hearing from customers in terms of activity and any early thoughts around what you expect spending increases to be both in the U.S. and internationally as a percentage, and how much do you think inflation will be as a component of that increase?

Look, I think we have got strong growth as we look into next year. Really, we don’t haven’t even seen budgets from customers, but expect that growth to be strong. Clearly, we are going to be up from here, I guess, is how I would describe next year, up from where we are today, and obviously, that’s really strong growth that we have seen over the last year. So I think that the North America demand continues to increase and internationally we have already talked quite a bit about that. But I expect that we will see growth really everywhere in the sense that customers can be busy, they will be busy. I think the traction in the Middle East is just getting underway and I think that we will continue to see a tightening. And I continue to view this as a margin cycle as opposed to necessarily, it’s not a build cycle, it’s a margin cycle and I think that we are going to be the real beneficiaries of that at Halliburton.

Thank you, Jeff.

Yes.

Yes. Good morning.

Good morning, Scott.

Good morning.

The smaller pumpers here domestically have discussed replacing about 10% of their fleet annually, generally with e-frac additions. As we think about Halliburton, is that a rough guide for you all, assuming returns stay positive or do you have a different framework? How do you think about that kind of multiyear replacement cycle?

We currently have a strong fleet because we consistently reinvest in it regardless of market conditions. Even during challenging times, we maintain a replacement cycle for our equipment, which continuously benefits us. Recently, I've heard from a customer that much of the existing equipment appears to be in poor condition and they are struggling to replace it quickly. The pace at which we operate, particularly regarding the service intensity I mentioned for frac equipment, leads to more usage and we cannot defy the laws of physics. Therefore, when we assess our replacement cycle, we consider it an ongoing electric replacement cycle and have concentrated on that aspect. Our advanced technology is in high demand from our customers. We are translating this demand into long-term contracts that provide returns on capital, costs, margins, and actual capital returns all within the same agreement. This illustrates the strength of our technology and the nature of customer demand. However, we are not rushing this process; we move forward as the demand justifies committing to that equipment over a period of time.

Got it. Okay. No. Very well guys. I appreciate the information. Turning back to the International markets, you experienced impressive growth internationally even without Russia this quarter, as you mentioned. We received a few inquiries this morning trying to determine exactly what the International growth was year-on-year excluding Russia. I apologize if you provided that number earlier; I might have missed it, but are you able to share with us what that is?

Yeah. Yeah. It’s…

...growth was?

Yeah. It’s 21% year-on-year International growth.

Was that figure including Russia or excluding Russia?

That’s excluding Russia while we had Russia and excluding Russia for the last quarter.

With Russia in H1 and without Russia in Q3.

Right. Do you have the number outside of Russia, how quickly you guys grew year-on-year?

That I don’t know.

No.

But it would have been significantly more.

Yeah. Yeah. Okay. I could follow-up. Okay. Thank you.

All right. Thanks, Scott.

Thanks. Good morning, gentlemen.

Good morning, Stephen.

Two things for me. One just from a North American perspective, how are the conversations with customers about price? I mean, obviously, pricing has been improving for a while now, is there a pushback yet? How do the conversations go as far as 2023 pricing for frac and how do you think that plays out as you go forward?

Look, I am absolutely not going to get into details around price discussions with customers. Look, I think that, I have already said, I view that pricing strengthens. We are still below pre-pandemic levels in terms of pricing, so there’s room to improve there. Service quality and technology are both driving premiums. I have talked about sort of pull on eFleets and just general performance and maintenance of the fleet. Pricing is always going to be iterative. It’s not giant steps. It’s what I talked about like throughout the year that gets us to where we are today and I think there’s a lot of power in having a structurally advantaged low emissions fleet, which is what we have out there today.

Is it…

One important aspect that wasn't mentioned is the importance of securing reliable capacity for 2023. Halliburton, as an execution company, is known for its reliability in meeting delivery commitments. Therefore, ensuring that type of capacity for 2023 is a top priority for our customers.

As a follow-up, do you see a gap in conversations regarding the cost of diesel compared to the lower cost of operating eFleets, and how does this impact the pricing discussions?

Ignoring price, the discussion regarding the eFleets highlights their long-term advantages as a superior solution. They are indeed more efficient to operate, generating value not only from a pricing perspective but also in terms of effectiveness and pumping capabilities. These fleets have proven to be highly reliable; for instance, one unit operated continuously for 500 hours in its first month. This level of reliability is making them particularly attractive in the market, which explains the growing demand. While cost is certainly a factor for our clients, it would be an oversight to overlook the additional value components involved.

Great. Okay. Thank you.

Thank you.

Yeah. Thank you. Good morning. I guess I’d like to ask the question a little bit differently on the capacity versus investment and tightness of new equipment, spare parts and everything, as you said, Jeff. But if we were to look at, maybe work you have turned down in North America or contracts that you either don’t want to bid on internationally or bid maybe less aggressively, has there been any change in that as we look across the course of 2022 and maybe what you are seeing for the early parts of 2023?

It would be returning more not less in terms of, that’s part of how we improve margins on the overall portfolio and returns. But we have been really consistent about our strategy and maximizing value in North America growing profitably internationally and that is one of the key levers that we have to do both of those things. And so, yes, we have done both of those.

Yeah. But I guess I am just wondering, I mean, you are turning down more not less, is it a material amount at this point or is it still pretty much just on the margin you see a project that’s not interesting or enticing?

I think our situation is that we are at the margin, but this will change as the market tightens. We are building, as I mentioned, and adding to our capital expenditures. We have seen significant growth over the past year due to our CapEx levels and expect that to continue because of our approach to building equipment. We are not shutting everything down. It's crucial to note that the contracts we target and secure add value to our operations, and if they don't, they likely won’t make the cut because we aim for new capital investments, whether for drilling equipment or other resources, that yield higher value.

It's great to hear there's better selectivity in the market. My follow-up question concerns the tightness in availability for new equipment and spare parts. I know your operations on the pressure pumping side are quite integrated in manufacturing. However, as you collaborate with subcontractors, are you taking any steps to help them boost their capacity, or is the situation generally constrained with limited prospects for improvement regarding the supply chain, particularly concerning equipment expansion or those with significant maintenance needs?

Look, it will get fixed over time, but in most of these cases, there’s not a lot that can be done to accelerate their supply chain when it’s far reaching. Clearly, we plan ahead and we have been planning ahead for over a year. We have got great visibility. But that market will just be tight for spare parts and equipment.

All right. Appreciate that. Thank you.

All right. Thank you.

Your line is now open.

All right.

Yeah. Thank you, Shannon, and thank you all for participating in today’s call. Just let me summarize with a few key points. Halliburton’s strong third quarter performance shows our strategy is delivering value for our shareholders. Oil and gas supply, shortness constraints and shortages I see today create strong and growing demand for Halliburton’s equipment and services in support of this multiyear upcycle. At Halliburton, we will continue to execute on our strategic priorities to drive free cash flow and we will support of this multiyear. Looking forward to speaking with you again next quarter. Please close out the call.