Halliburton Company (HAL) — Q1 2023 Earnings Call Transcript

Hello, and thank you for joining the Halliburton first quarter 2023 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 Chief Executive Officer; and Eric Carre, Executive Vice President and Chief Financial Officer. 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, 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 first quarter earnings release and in the quarterly results and presentation section of our website. Now I'll turn the call over to Jeff.

Thank you, David, and good morning, everyone. Halliburton's performance in the first quarter again demonstrated the earnings power of our strategy, strong competitive position and execution for our customers. Here are some highlights from the first quarter. Total company revenue increased 33% compared to the first quarter of 2022 with strong activity in both North America and international markets. Operating income grew 91% year-over-year. Operating margin was 17%, a strong start to the year and 530 basis points over the first quarter of last year. International revenue grew 23% year-over-year with strong activity in all markets. North America revenue grew 44% year-over-year with growth across every basin. The Completion and Production division posted 20% margins, an increase of nearly 700 basis points year-over-year. The Drilling and Evaluation division grew revenue 17% year-on-year while margins expanded more than 100 basis points. Before we continue, I'd like to recognize the employees of Halliburton for their outstanding execution on every dimension of our business. Safety, service quality and financial results. The work you do each day matters to our customers and shareholders. Thank you. I'll start with a few comments on the macro. Everything I see today validates the strength and duration of this multi-year upcycle. The world requires more energy from all sources, including oil and gas, driven by population growth and economic development. Multiple years of structural underinvestment in oil and gas supply can only be addressed by strong activity over the next several years. The commodity price volatility experienced in the first quarter does not change our view of customer demand and a tight services market. Our customers around the world recognize this and we expect their spending to grow in 2023 and beyond. Further, we expect much of this investment will be directed towards development activity, which is great for Halliburton as it drives outsized demand for our products and services. My view of this upcycle is confirmed by what I hear from our customers and see in the world's oil and gas markets. The Halliburton outlook for both the current year and the long term is strong. Now let's start with our performance in the international markets. Our revenue in the first quarter grew 23% compared to the same period of last year, reflecting strong activity in all regions. Halliburton executed its strategy to deliver profitable international growth through leading technology offerings, improved pricing and disciplined capital allocation. I expect international spending to grow high teens for the year 2023, with most new activity coming from the Middle East, Asia and Latin America. I am confident in this outlook because we have a strong pipeline of awards that will commence later this year and beyond. Our completion tool order book grew 40% year-on-year in the first quarter, which generally represents work delivered within the current year. And finally, pricing continues to trend up for all product lines in all regions. I'm excited about all segments of our international business. Today, I'd like to provide more color on our offshore business. We generated nearly 45% of our international revenue in the first quarter from our offshore business. Here are a few examples of differentiated technologies that drive a higher level of performance, service quality and reliability for our customers. Halliburton's intelligent drilling and logging while drilling platforms, iCruise and iStar in combination with LOGIX, our automation platform, delivered the longest reservoir section in a single run for a customer offshore Norway. Our latest wireline imaging technology, STRATA Examiner, delivered high resolution, borehole imaging data, allowing a customer to increase reserve estimates during a recent exploration campaign in the Mediterranean Sea. Halliburton's digital solutions allow our customers to reduce cost per barrel and increase efficiencies. Hess, Repsol and Petrobras, all recently selected Halliburton Landmark's DecisionSpace 365 applications powered by iEnergy Cloud. Our trusted science and machine learning algorithms enable customers to optimize subsurface, well construction and production-related decisions. Cognitive Halliburton's offshore automated cementing system delivers cement jobs remotely with minimal human direction and intervention. More than 30 cement jobs were completed this quarter in the North Sea alone. Finally, I'm excited about the progress of our TechnipFMC alliance on all electric completions. I believe this technology will over time, substantially change the cost and performance of deepwater completions and subsea infrastructure. As I look at 2023 and beyond, I am excited about our international business. Our customers are clearly motivated to produce more oil and gas. Service capacity is tight and pricing is increasing. Our differentiated technologies and our execution drive margin improvements and growth across our international business. Turning to North America. As I expected, Halliburton achieved strong results despite volatile commodity prices. We delivered on our strategic priority to maximize value in North America through capital efficiency, differentiated technology and alignment with high-quality customers. I know it's on your minds. So let me briefly discuss the natural gas markets. First, I firmly believe that the gas market softness will be resolved when the 6 billion cubic feet per day of additional LNG export capacity comes online in the next 24 months. Second, in response to market conditions, we are moving 3 fleets from gas basins to oil basins to satisfy specific customer demands. Finally, we retired 1 Tier 2 diesel fleet which will reduce our near-term maintenance costs and accelerate Halliburton's transition to e-fleets. These actions reduced our gas market exposure by about 30% and maintain financial returns. I reiterate my expectation that North America customer spending will grow at least 15% in 2023. At today's oil prices, I believe that our customers will execute their activity plans and the market for highly efficient equipment and quality services will remain tight. Our strategy is to maximize value in North America. Let me be crystal clear about what that looks like. First, we improved the performance and utilization of our existing fleet and we align with high-quality customers who value our operational efficiency and consistent execution. Here's what the customers are telling me. Halliburton's performance is different, not only better than your competitors, but even better than your own past performance. Our step change in performance, safety and operational efficiency comes from our investments in new technologies, crew training and process improvements. As a result, today, we see a 60% improvement in pumping utilization across our entire North America land fleet since 2019. Second, we only deploy service capacity to attractive return opportunities. We are always finding ways to improve average fleet returns. Finally, we invest in differentiated products and services that improve margins and asset velocity. Our patented Zeus e-fleet and SmartFleet are examples; they maximize asset values for our customers and structurally improve returns for Halliburton. Our Zeus e-fleets continue to outperform for our customers and smart fleet adoption is accelerating. We delivered about 6 times more smart fleet stages in the first quarter than a year ago. Halliburton's position and outlook in North America is strengthened by the uptake and contract duration of our e-fleets. The contracting structure for e-fleets, which we only deploy on multiyear contracts and our technology roadmap for the future, create structural strength in Halliburton's North America business. Halliburton's e-fleet technology is proven to deliver better performance, lower total cost of ownership and increased operating efficiency. For customers with the mandate to produce barrels over the long term and maximize the value of their investment dollars, the attraction to e-fleets is self-evident. To summarize, I believe Halliburton is uniquely positioned to deliver financial outperformance, our strong execution culture, differentiated technology portfolio and collaborative approach with customers give us a strong competitive advantage. I am confident that we will execute our strategic priorities and deliver shareholder returns by maximizing value in North America, delivering profitable international growth and driving capital efficiency. Before I turn it over to Eric, I'd like to leave you with 2 financial points. First, given my outlook, I expect the execution of our strategy will deliver significant and growing free cash flow. Second, while our previously announced capital return framework provides a minimum of 50% free cash flow back to shareholders, it also gives us the flexibility to return more cash to shareholders in the form of share buybacks. Everything I see today points towards more cash to shareholders. Now I'll turn the call over to Eric to provide more details on our financial results.

Thank you, Jeff, and good morning. Let me begin with a summary of our first quarter results. Total company revenue for the quarter was $5.7 billion, a 33% increase over the first quarter of last year while operating income was $977 million, an increase of 91% year-over-year. Operating margin for the company was 17.2% in the first quarter, which is an increase of 530 basis points over the first quarter of 2022. These results were primarily driven by increased global activity, improved pricing and strong seasonal product and software sales. Our first quarter reported net income per diluted share was $0.72, which more than doubled from the same period last year. Beginning with our Completion and Production division, revenue in the first quarter was $3.4 billion, a 45% increase when compared to the first quarter of 2022 while operating income was $666 million, an increase of 125% when compared to the first quarter of 2022. C&P delivered an operating income margin of 20%, driven by increased activity, improved pricing and service efficiency in North America. In our Drilling and Evaluation division, revenue in the first quarter was $2.3 billion, an increase of 17% when compared to the first quarter of 2022, while operating income was $369 million, an increase of 26% when compared to the first quarter of 2022. D&E delivered an operating income margins of 16% driven by strong wireline, testing and drilling-related services globally and an uptick in international activity. Now let's move on to geographic results. Our first quarter international revenue increased 23% year-over-year due to solid product sales, activity increases and pricing gains across multiple product lines. In North America, revenue in the first quarter was $2.8 billion, a 44% increase when compared to the first quarter of 2022. This increase was primarily driven by increased stimulation activity and efficiencies, higher activity across our well construction product lines in North America land as well as higher activity across multiple product lines in the Gulf of Mexico. Latin America revenue in the first quarter was $915 million, a 40% increase when compared to the first quarter of 2022 due to increased well construction services and stimulation activity in Mexico and Argentina, and higher completion tool sales across the region. Europe Africa revenue in the first quarter was $662 million, a 2% decrease when compared to the first quarter of 2022 as a result of the sale of our Russian operations, along with decreased activity across multiple product service lines in Norway. This decrease was partially offset by increased well construction services and stimulation activity throughout Africa. Middle East Asia revenue in the first quarter was $1.3 billion, a 30% increase when compared to the first quarter of 2022 primarily due to improved activity across multiple product service lines in Saudi Arabia, higher completion tool sales, improved well construction services and increased project management activity across the region. Now I'd like to cover some additional financial items. In the first quarter, our corporate and other expenses was $58 million. For the second quarter, we expect our corporate expenses to be up about $5 million. Net interest expense for the quarter was $79 million. For the second quarter, we expect this expense to be about flat. Other net expense for the quarter was $69 million, primarily related to unfavorable foreign exchange movements. For the second quarter, we expect this expense to decline approximately $15 million. Our effective tax rate for the first quarter came in at approximately 21%. Based on our anticipated geographic earnings mix, we expect our second quarter effective tax rate to increase about 50 basis points. Capital expenditure for the first quarter were $268 million. We anticipate that our remaining capital expenditures will increase quarter-over-quarter into the end of the year and total capital expenditures to be approximately 6% of our revenue for the full year. Our first quarter cash flow from operations was $122 million, and free cash flow was a use of $105 million. These results were primarily driven by seasonal investments in working capital. As is typical for our business, we anticipate our cash flow will be back-end loaded for the year. We expect to generate strong free cash flow for the rest of 2023. As a step toward achieving Halliburton's capital return policy of returning at least 50% of annual free cash flow to shareholders, we repurchased approximately $100 million of common stock during the first quarter. Finally, turning to our near-term operational outlook. Let me provide you with some comments on how we see the second quarter unfolding. In our Drilling and Evaluation division, we expect the seasonal revenue decline in software sales to be partially offset by further improvements in global drilling activity. As a result, we anticipate sequential D&E revenue to increase low to mid-single digits and margins to decline 50 to 100 basis points. In the Completion and Production division, we anticipate sequential revenue to increase low to mid-single digits and margins to improve 25 to 75 basis points.

Thanks, Eric. Let me summarize our discussion today. Halliburton's performance in the first quarter demonstrated the earnings power of our strategy. My outlook for Halliburton is strong. I expect international year-on-year growth in the high teens North America growth in excess of 15%. And finally, everything I see today points towards more cash to shareholders. And now let's open it up for questions.

So let's just get right into it. Despite the strong numbers you put up in North America this quarter and the guide for second quarter, we kind of firmed up everything. The bear case has been heating up during the quarter with the rig count softening a bit. A&P suggesting pricing is poised to come down. On the other hand, we're hearing from you, other service companies that you don't see this slowdown. In fact, prices continue to rise. I wonder if you help kind of help us start up the disconnect here. Does the difference line to customer mix? I know you highlighted the gas market and particularly weak. Is the differentiation of equipment just a lot of rhetoric keep during the quarter. I'm just wondering how we should be thinking about your U.S. land activity and the pricing trends in the second half.

Yes. Well, thanks, Dave. Look, prices aren't moving down. And I think from our comments, I've told you what we've done and what we plan to do. Overall margin improvement comes from a structurally bifurcated market, as you described, demand for high-quality services are very much in demand and hard to deliver. And quite frankly, the cost of the frac hasn't changed. I mean the engines are moving up. There's still inherent inflation in the frac business today. So there's not a connection there. And so as I look out at the rest of the year, we continue to improve the earnings power of our fleet through bifurcation, delivery of these fleets, retirement of it needs to be retired, be clear, not stacked, but retired. And then finally, efficiency and sort of repositioning around better pricing.

But pricing in your mind continues to move higher. And I would assume that pricing from last year still continue to roll through your fleets?

I would say on average. Yes.

If I could switch topics to the international sector, your business in the Middle East doesn't receive much recognition, even though it's comparable in size to some of your larger competitors. Could you share your thoughts on how activity is evolving in the Middle East this year? Are you still increasing your contracts there? I believe you mentioned this in your earlier comments, but what is your outlook on tenders in the region for this year? Lastly, should we anticipate an increase in D&E margins next year based on the pricing trends you're observing this year in the Middle East?

Yes. Look, pricing is improving. And so and I would expect D&E margins to improve along with that. I would still argue early innings of activity increase in the Middle East I'm pleased with our growth. So thank you for pointing that out. But I see this continuing rig counts aren't necessarily at near peak. And I think we've got a lot of opportunity to continue to run. And then broadly, international, it's beyond the Middle East, pleased with the growth that we saw in the first quarter. And just a reminder to to everyone that in Q1 of '22, Russia was 2% of our business. And so that's really pretty strong growth.

Jeff, just digesting service prints and outlooks thus far, we are seeing or observing more resilient conditions in U.S. frac versus drilling. I wanted to get your thoughts on why do you think this is the case? And how do you see things playing out in terms of your drilling-related segments at Sperry in North America over the balance of the year?

Yes. Look, I think wells drilled in North America really a function of DUC count. So as the DUCs get drawn down, more wells have to be drilled. And so I think fluctuation in drilling. And it's interesting that you see fluctuation in drilling, but a very steady march in terms of frac. And I think some of that is managing cost at the margin. but the fact is they don't produce more without fracking wells. And so I'm not surprised to see that. I think our D&E business in North America remains strong. confident on what we're seeing there. We continue to sort of make gains in the drilling part of the business. And I would say the other service lines are very strong.

Great. Great. And just my follow-up, Jeff, you mentioned that you have some sort of relationship with FTI on the electric side. I was wondering if you could maybe give us some more details on that partnership?

Yes, this presents an opportunity to leverage the strengths of both companies, especially in areas where we have synergy. We have been working on various projects, including all-electric completions for about five years, and we just renewed our partnership with TSMC for another five years. They are a great collaborator in this field. What we aim to deliver is a groundbreaking all-electric solution that requires the combined efforts of both companies, even though it's not the main focus of either business. Nevertheless, in this specific area, we are able to create unique synergies and opportunities to innovate. I'm very pleased with our relationship and the progress we've made, which includes joint marketing and selling of some solutions today.

So Jeff, I understand you spend about 60 percent of your time traveling to meet with customers, mostly internationally. Could you describe the current customer conversations, their sense of urgency, any pushback regarding pricing, or is there more concern about availability? I'm interested in how you perceive the cycle moving forward and what insights you're gaining from your interactions.

Thank you, James. The discussion is primarily focused on availability rather than other factors. This includes the services we offer, access to capital, and more crucially, the availability of tools and personnel. We are currently engaged in extensive planning for our activities in 2024, which we anticipate will increase. There is significant concern regarding availability in 2024, prompting us to allocate substantial resources now to address this issue. Therefore, I am very confident about our prospects internationally and the scope of projects we have secured.

That's great to hear. Regarding North America, the anticipated growth of over 15% this year raises a question about how much of that is attributed to pure inflation in the market, such as rig rates or fractured costs, as opposed to growth driven by rig count or activity.

Yes, James. I believe it's a combination of both factors, and certainly, increased activity leads to more replacement types. Looking back to inform the future, last year we experienced 5% production growth, which translated into about 50% revenue growth for us. For 2023, the outlook suggests approximately 3% production growth, with published estimates indicating operator capital expenditures around 17%. This highlights a couple of points. Firstly, producing oil is becoming more challenging, requiring more of our services and higher quality services. Therefore, I am confident that we will maximize value in North America, and I believe that the interplay of activity and price will result in growth greater than 15%.

Congrats on the quarter there. Just a couple of things to follow up on, Jeff. Your comment in the opening about 45% of your international coming from offshore and obviously talking a little bit about planning for '24, which greater visibility on offshore, a lot of times than others. I was just curious how you see that potentially changing. Does it increase as a percentage of mix? And how should we think about that in terms of enhanced visibility, top line growth and maybe margin expansion?

Yes. Thanks. Look, I'm pleased with the growth on a percentage basis of our position in offshore or the amount of offshore work that we're doing. Look, I think it continues to grow and I expect our position as we continue to bring out the types of technologies I talked about continue to help drive our growth in offshore work. And so we are levered heavily to offshore, and this is all service lines or levered to offshore. And I think that as we see that business grow, I expect, yes, it does translate into top line growth and margin growth. And I think that what's clear though, also is it higher service intensity, but it also requires more equipment to do offshore work. So it has a bit of a double effect in terms of growing revenues and margins, but it also tightens up the rest of the business by virtue of consuming backup tools and additional shifts of people. And so as offshore grows, that has a tightening effect really on everything, which again, helps to drive better margins and better growth.

Okay. And then mine related follow-up on that. You mentioned the Smart frac had picked up quite a bit in the U.S. I think it was up roughly 6 times versus a year ago. Any thoughts to what that growth rate is going forward? And should we anticipate sort of any change in terms of margins as that goes forward, positive, negative or unchanged?

I believe that the growth rate will continue at a steady pace. This solution is both affordable and scalable, providing critical data to operators as they focus on productivity per foot. It effectively measures the movement of sand, which is essential for producing better outcomes and identifying the most efficient solutions. I expect this area to grow rapidly, and we have been integrating more technology to make deployment easier. Our goal is to be the most efficient solution available, and as it scales, it increases in value for us. This solution tends to be very engaging because once operators access the data and incorporate it into their processes, it becomes an integral part of their operations over time.

First question is about the comments about moving 3 frac fleets from gas to oil basins. Can you talk about whether you see more potential for this to happen? What are some of the switching costs associated with that? And is this the beginning of a greater trend?

I believe we have shown our commitment to this approach. Clearly, gas economics are currently facing challenges, and I don't believe that simply adjusting service prices will resolve these issues. Gas remains critically important, and I anticipate its continued significance, especially as we expand LNG capacity in the U.S. Along this path, we also recognize opportunities to address unmet demand in oil, which is why we've taken the actions we've outlined. We aim to enhance the percentage of our fleet dedicated to this, which necessitates phasing out some of our older fleets. From our viewpoint, this is the direction we are heading. Gas operators are actively continuing their operations, and to that point, we have recently integrated an electric fleet into a gas basin with an operator. This clearly indicates that there is a positive outlook for gas recovery.

And then can you talk about the return of capital comments. You had mentioned you could see a scenario where you go in excess of the 50% of free cash flow back to shareholders. So Talk about how you're thinking about using the buyback as a tool to create value.

Well, as I described, our outlook is strong. I expect we generate a lot of free cash flow. And yes, I believe that as we do that, we'll be able to return more cash to shareholders. And so we took a step in Q1. But obviously, the ability to the flex there is going to be with share buybacks.

Just to understand that same line of inquiry given the appetite to go above the 50% threshold, Jeff, is there an appetite to pursue buybacks with bigger here near term when the stock is quite attractively priced? Or do you wait until the cash flows show up later this year and risk buying at a higher price if the fundamentals stay tied as you foresee?

Yes, Scott, it's Eric. Generally speaking, our current approach to cash returns includes the recent dividend increase. We plan to continue with small technology-driven acquisitions and gradually pay down debt. However, our primary focus now is on increasing share buybacks throughout the year. So yes, that’s the direction we’re heading in.

Got it. And then an unrelated follow-up. I'm just looking at your year-on-year incrementals in D&E, and they appear quite strong. And I would guess this is largely driven by operating leverage and mix around offshore and technology, just given previous commentary. And I would guess pricing is less impactful today at this juncture with potentially more of a price contribution in the years ahead. Is that a fair assessment? Or is pricing having a significant impact here already in 2Q if you look year-on-year at D&E margins?

Pricing has certainly improved compared to last year. However, the more important factor is the depth and sustainability of the technology we are introducing. It's not just a temporary situation. While we see improvements in pricing, we are also achieving significant capital efficiency with our technology. This means we are able to capture more value and cash flow over time. I anticipate that the margin improvements you observed this quarter compared to last year will continue in future increments. My expectation has always been that we will see margin improvements in D&E each quarter, and I expect that trend to persist. While there may be some fluctuations throughout the year, the key point is that if we evaluate each year by quarter, we should witness consistent quarter-over-quarter improvements. I believe we have ample opportunity for growth ahead in D&E.

But it just sounds like it's more of the kind of structural investments you made around technology and driving your asset turns and mix more than pricing today. Is that fair, Jeff?

Yes, I think that is reasonable to say.

Jeff. I guess maybe if we can kind of hit on free cash flow. If we think about your outlook, your North America outlook was maintained. And it looks like you kind of bumped up your international outlook so I'm guessing that it would probably imply a bump to your free cash flow outlook. I think last quarter, you said free cash flow should grow at least 20%, which seemed conservative when you gave it so with a better international outlook and still maintain North America. Any updates on how we should be thinking about 2023 free cash flow?

Yes, it's Eric. We are very confident in the business outlook and the profile of free cash flow. We expect to start generating significant free cash flow in the second quarter and the second half of the year as we wrap up the working capital buildup from the first quarter. Our outlook is now more than 30% instead of the 20% we projected in the first quarter. Therefore, we are raising our projections.

Okay. Awesome. And then unrelated follow-up, you highlighted a lot of digital wins in your press release and also in your prepared remarks today. So question around this, and are you starting to see more digital adoption by your customers? And if so, what's been the catalyst for accelerated adoption I'm going to give this 1 to try and in any chance that you could speak to how material digital revenues are today for Halliburton?

Yes, I believe that the adoption will always depend on business cases and the value they provide to customers. The notion of transitioning fully to digital has seen its ups and downs, mainly because it has not always been successful. Currently, we are witnessing more significant adoption of real software and automation solutions, which represent a substantial part of our business, albeit distributed across the organization. We generally categorize these into two areas: software as one activity and automation as another. Both stem from similar technical capabilities, meaning the ability to produce software at scale, much of which is tied to our Landmark business. The software component is one facet, while automation utilizes many of the same tools, possibly acquired in different ways throughout the business. This has a noticeable impact on our performance margin outlook and will continue to do so. In our offshore drilling operations, for instance, automation in drilling tools plays a crucial role, as does our ability to enhance maintenance and performance with frac fleets in onshore North America. Though we may not openly promote it, this capability is intrinsic to the performance and efficiency we are achieving today.

Jeff you reached your international growth outlook this year from at least mid-teens to high teens. Can you unpack this a little bit? And maybe just talk about what's changed, what's accelerating and what you have more confidence in?

Yes, I have increased confidence in three key areas. First, the indicators we are monitoring, such as the completion tool order book, have grown significantly and are focused on this year. Secondly, we are observing improvements in pricing and a tightening of equipment availability globally, which is another important factor. Lastly, we are achieving recognition through awards and experiencing growth. We are selective about the awards we pursue, as our strategy centers on profitable international growth, with a strong emphasis on profitability. Simultaneously, we are achieving success across various markets, leading us to see a trajectory toward high teens growth.

Got it. Good deal. And then maybe on the geo market, you touched on the Middle East growth earlier, but could you expand on what you're seeing in Asia and Latin America for the balance of the year?

Yes. I'm seeing Asia, again, pick up, particularly in terms of development type work, which is obviously right there in our wheelhouse. And then also in Latin America, clearly, we see activity growth in Brazil. But really throughout the region, we see the imperative to produce more oil and gas. And clearly, oil and gas is an important part of the economies of Latin America. And so there's a lot of motivation to be more effective and to deliver more oil and gas, partly for economic reasons and for tax revenues. But I think I'm really encouraged by what we see.

So curious, when we look at U.S. pressure pumping world, a lot of the competitors have expanded services at the well site. I mean going through all things from vertical integration to well site integration. How are you seeing it from your eyes as far as how it impacts how, how it impacts pricing and your profitability in the business at the wellsite.

We consider everything strategically, focusing on long-term returns and establishing competitive advantages. Vertical integration alone does not necessarily generate additional value. In the fracking sector and every other area we operate in, our emphasis is on creating technical differentiation, which provides a competitive edge for Halliburton. When I reflect on our advancements with electric fleets and smart fleets, those are significant developments. While some inputs may benefit other businesses, we identify where we can build a competitive advantage. Therefore, it's not simply about the volume we can achieve near the wellbore, but understanding where we can increase volume while developing that advantage. I am pleased with our current strategy in this regard.

And then just as a quick follow-up, are you seeing tightness in sand? And is that a profit center for you and any material movements in that over the last couple of quarters?

No. Not a lot of movement in the last few quarters. And again, I view it like all inputs to our business. It’s going to fluctuate at different times, different levels. There’s a lot of sand in the world, and it’s quite available. So I don’t view that as a long-term impediment to anything that we’re trying to do just given the availability and really how to go about producing it.

Yes. Thank you, and thank you all for participating in today's call. Let me close out the call with just a couple of comments. First, Halliburton's performance in the first quarter demonstrated the earnings power of our strategy. And then secondly, my outlook for Halliburton is strong and everything I see today points towards more cash to shareholders. I look forward to speaking with you next quarter. Let's close out the call. Thank you.