Halliburton Company (HAL) — Q2 2024 Earnings Call Transcript

Hello, and thank you for joining the Halliburton second quarter 2024 conference call. We will make the recording of today's webcast available for seven days on Halliburton's website after this call. Joining me today are Jeff Miller, Chairman, President, and CEO; and Eric Carre, Executive Vice President 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, 2023, Form 10-Q for the quarter ended March 31, 2024, 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 second 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 delivered solid second quarter results that demonstrated the strength of our international business and the differentiation of our North America service offerings. Here are the quarter highlights. We delivered total company revenue of $5.8 billion and an operating margin of 18%. International revenue was $3.4 billion and grew 8% year-over-year, led by Latin America, which delivered a 10% increase. North America revenue was $2.5 billion, an 8% decrease year-over-year compared to a 12% decline in rig count over the same period. Our Drilling and Evaluation division and our Completion and Production division both demonstrated margin improvement year-over-year. Finally, during the second quarter, we generated $1.1 billion of cash flow from operations and about $800 million of free cash flow, and repurchased $250 million of our common stock. I'll begin our discussion with the international markets, where Halliburton's strategy of profitable growth delivered another solid quarter. International revenue grew 8% year-over-year, with growth demonstrated by each region. This marks the 12th consecutive quarter of year-on-year growth in our international business. As I look ahead for the remainder of this year, my outlook today is consistent with our expectations at the start of the year. I expect steady growth for Halliburton throughout the remainder of 2024. In our international markets, we see strong demand for Halliburton services, high activity levels, and equipment tightness across all major basins. We expect our international business to deliver about 10% revenue growth for the full year. I am pleased with the profitable growth we're seeing across our product lines. And today, I would like to highlight three specific ones in more detail. The first is our Landmark Software business. I recently attended our Landmark Forum, LIFE2024, in Athens, Greece. It is an annual event where we share our latest software innovations and our customers share their successes and future opportunities. While in Athens, I had the opportunity to meet with dozens of customers and they told me how excited they were about our latest offerings like unified ensemble modeling, scalable earth model, and our latest developments in AI and machine learning. These tools change the way customers work by driving efficiencies from asset-level planning through production. The conference included customer presentations that showcased their business transformation and their use of Halliburton Landmark’s tools. Our customers tell us we create unique value with our iEnergy cloud platform, which seamlessly integrates into their workflows. I am confident that Landmark's DecisionSpace 365 will expand and add to our customers' productivity and innovation journey. Next, Halliburton's artificial lift product line is growing in the international markets at double the rate of our overall international business. It embodies our successful M&A strategy of bolt-on acquisitions that bring leading technology into our portfolio. We organically grow new technologies through our global footprint and through collaboration with our customers to engineer solutions that maximize their assets' value. As one example, this quarter we launched our GeoESP line, which is engineered for the harsh geothermal environment. The GeoESP line solves for extreme thermal cycling, scale development, abrasion, and corrosion. While geothermal ESP technology has applications across the globe, Halliburton sees substantial growth opportunities in Europe where customers require advanced technology to bring geothermal to scale. Finally, Halliburton's drilling services are key to our success in the international markets. We had another strong quarter in unconventional drilling with our iCruise X rotary steerable system and our LOGIX autonomous drilling platform. We deployed advancements that improved drilling speed and reliability and set several general records during the quarter. We invest in differentiated drilling technology and we expect our strong performance and reliable execution to drive above-market growth. For example, in the Middle East, our drilling services revenue grew about 30% year-over-year. I am pleased with our international business and look forward to deepening our strategy and delivering additional profitable growth. Turning to North America, our second quarter revenue declined 3% compared to the first quarter. Halliburton's first half 2024 results were largely as we expected. However, as we have seen, rig counts and overall service activity declined through the quarter. As I look to the second half of 2024, I now expect full year North America revenues to decline 6% to 8% versus last year, driven by lower activity. I expect that the second half of 2024 will be near the low point of activity levels this cycle, and while it's too early to give specific guidance for 2025 in North America, I expect activity to be directionally higher than the second half of 2024. Here's how I think about this. First, I expect an increase in activity after E&P companies complete their acquisitions and establish new development plans. Second, some of the merged assets will be divested to smaller operators who will put them to work. Finally, I expect some recovery in natural gas activity. Six years ago, when we set our strategy to maximize value in North America, I understood it may take a market like we see today where North America activity declined by over 200 rigs in the last 18 months to demonstrate the margin resilience and earnings power of our strategy. I am pleased that Halliburton delivered strong C&P margins through this period, and I am confident that our strategy will deliver strong results in the future. We're committed to our strategy to maximize value in North America because it delivers shareholder value, and it is the right strategy for this market. For Halliburton, we focus on returns. We allocate capital to the markets and products that drive superior returns and margins. We prioritize returns over market share, and to that end, we retired a few fleets this quarter. We developed differentiated technologies to solve for the unique requirements of the North America market. Lastly, we improve efficiencies for our customers through those technologies, service quality, and execution. I expect this strategy will deliver leading performance for our customers and a structurally more resilient North America business for Halliburton. A key part of how we do this is our strategic investment in technology. One technology I'm excited about is the latest addition to Octiv, a key component of the ZEUS platform. Today, Octiv is a cornerstone of how we deliver large multi-well pads with unmatched precision and consistency. As our customers execute completions with ever-increasing size and intensity, automation, as delivered by Octiv, provides better control and more effective delivery for simul-frac and trimulfrac operations. During the second quarter, we completed field trials of the latest level of Octiv automation called AutoFrac. With the single click of a button, AutoFrac executes the entire frac job from ramp up at the start to ramp down at the end, making autonomous fracturing a reality. This new level of automation gives customers control to execute the frac design exactly how they want it without human intervention. Following our commercial trials, AutoFrac is ready to scale, and I'm excited about what this technology means for our customers and for Halliburton. Lastly, we see rapid adoption in North America of our iCruise rotary steerable system. We consistently reduce drilling times for our customers and create significant value. In the Permian Basin, the number of rigs running the system has increased by almost 45% since the start of this year. We are on pace to triple our footage drilled in North America this year, and I'm excited about the market adoption of iCruise. North America is the largest oilfield services market in the world. We are crystal clear on how we maximize value in North America. We have demonstrated that this strategy works. And that's why I am confident that we will continue to deliver strong returns through this cycle. To step back, Halliburton's returns and cash flows are strong and I am pleased with our performance this quarter. I'm just back from a few weeks in Europe/Africa. What I saw is a microcosm of Halliburton around the world. The quality of our people, the clarity of our strategy, our leading technologies, the depth of our pipeline of opportunities, and the competitiveness of our business segments all give me incredible confidence in Halliburton's future. Now, I'll turn the call over to Eric to provide a few more details on our financial results.

Thank you, Jeff, and good morning. Our Q2 reported net income per diluted share was $0.80. Total company revenue for the second quarter of 2024 was $5.8 billion, flat sequentially. Operating income was $1 billion, a sequential increase of 5%, and operating margin was 18%, a sequential increase of 69 basis points. Beginning with our Completion and Production division, revenue in Q2 was $3.4 billion, sequentially flat. Operating income was $723 million, up 5% when compared to Q1 2024, and operating income margin was 21%. These results were primarily driven by strong international completion and production performance, offsetting softer results in North America. In our Drilling and Evaluation division, revenue in Q2 was $2.4 billion, while operating income was $403 million, both sequentially flat from Q1 2024. Operating margin was 17%, a sequential increase of 20 basis points. These results reflect the strength of our global D&E business despite the roll-off of seasonal software sales in Q2, which affected every region. Now, let's move on to geographic results. Our Q2 international revenue increased 3% sequentially. Europe/Africa revenue in the second quarter of 2024 was $757 million, an increase of 4% sequentially. This increase was primarily driven by higher well construction activity and improved wireline activity in Norway, along with increased completion tool sales and higher stimulation activity in West Africa. Middle East Asia revenue in the second quarter of 2024 was $1.5 billion, an increase of 5% sequentially. This increase was primarily related to higher activity in the Middle East across multiple product lines and higher fluid services in Asia. Latin America revenue in the second quarter of 2024 was $1.1 billion, sequentially flat. In North America, revenue was $2.5 billion, representing a 3% decrease sequentially. This decline was primarily driven by decreased pressure pumping services in US land and decreased completion tool sales and testing services in the Gulf of Mexico. Moving on to other items. In Q2, our corporate and other expense was $65 million. For the third quarter of 2024, we expect our corporate expenses to increase slightly. Our SAP deployment remains on budget and is on schedule to conclude in 2025. In Q2, we spent $29 million, or about $0.03 per diluted share, on SAP S4 migration, which is included in our results. For the third quarter, we expect SAP expenses to increase slightly. Net interest expense for the quarter was $92 million. For the third quarter of 2024, we expect net interest expense to be roughly flat. Other net expense for Q2 was $20 million, which was lower than anticipated, driven by favorable FX movements. For the third quarter of 2024, we expect this expense to be approximately $35 million. Our effective tax rate for Q2 was 22.5%, lower than expected due to discrete items. Based on our anticipated geographic earnings mix, we expect our third quarter of 2024 effective tax rate to increase approximately 1%. Capital expenditures for Q2 were $347 million. For the full year of 2024, we expect capital expenditures to be approximately 6% of revenue. Our Q2 cash flow from operations was $1.1 billion and free cash flow was $793 million. During the quarter, we repurchased $250 million of our common stock. For the full year 2024, we expect free cash flow to be at least 10% higher than in 2023. Now, let me provide you with some comments on our expectations for the third quarter. In our Completion and Production division, we anticipate sequential revenue to be down 1% to 3% and margins to decrease by 75 basis points to 125 basis points. In our Drilling and Evaluation division, we expect sequential revenue to increase 2% to 4% and margins to increase by 25 basis points to 75 basis points. I will now turn the call back to Jeff.

Thanks, Eric. Here are a few key points I would like you to take away from our discussion today. I am pleased with our 18% margins and about $800 million of free cash flow in the second quarter. We are well on track to deliver over 10% free cash flow growth this year. I'm excited about our international business where our technology portfolio has never been stronger. I am confident that our strategy to maximize value in North America is working, and I expect it to continue to deliver strong returns. Finally, I am convinced that our collaborative approach and value proposition differentiate us from our competitors and are directly aligned with how our customers expect to drive improved performance. And now, let's open it up for questions.

Hi, good morning, Jeff.

Good morning, Dave.

North America is showing some signs of softening, which isn't unexpected. A significant portion of your fleet, approximately 40%, is under contract with e-fleet, and you are still rolling out equipment. I am curious about the re-contracting process for those. I assume that demand continues to exceed supply in this area. Is pricing able to increase further? Are you planning to blend in or extend contracts with customers seeking more? I'd appreciate some insight into the repricing of the e-fleets.

We continue to see strong demand for e-fleets, which is a leading technology. This quarter, we rolled out a couple more and signed additional contracts, providing momentum through the end of this year and into 2025. There are no contracts set to expire early until next year, and it’s a process we are actively managing. While I won’t delve into all the details on this call, we are establishing relationships with repeat customers, indicating the value we are delivering. Overall, I am confident in this process, but I prefer to keep the details to a minimum during this call.

Totally understand. But would you expect that most of those fleets stay with existing customers?

Yes, I still feel confident. These are the same customers who are signing up for their second fleets and even more. There’s no reason to think they wouldn't continue. We are clearly on track to reach 40% in 2024 and 2025 as well. The trajectory becomes clearer every day.

That makes a lot of sense. Regarding your international performance, you mentioned a 10% revenue growth, with the Middle East showing a 5% sequential increase this quarter. Can you elaborate on that aspect of your international operations and your expectations for future growth? Should we anticipate an acceleration in that growth? There seems to be a significant unconventional play in that region that you're involved with. If possible, could you discuss any potential contracting opportunities related to it? Am I accurate in thinking that growth in the Middle East should begin to pick up, especially looking into next year?

I'm very confident about our business in the Middle East. While I won't discuss specific contracts, Aramco is an outstanding operator, and we have significant involvement in both unconventional resources and gas work in Saudi Arabia. Our typical services cover a lot of ground, along with some innovative new offerings. Therefore, I am quite optimistic and even bullish about the Middle East.

All right, it's good to hear. Thanks, Jeff.

Thank you.

Yeah, good morning. Jeff, my first question is on North America. You now expect revenues down 6% to 8% year-over-year. How would you characterize the declines in terms of impact from lower activity levels versus, call it, pricing impacts?

The decline is mainly due to activity levels. We also retired a few fleets during the quarter, but this is primarily about activity. Looking at the overall activity for the year, the gas market actually declined more than I anticipated. It’s not just stable. M&A takes time to adjust, impacting overall activity and efficiencies. We have fantastic technology, and while we often discuss efficiencies, we also need to keep pace with rigs. I'm pleased that we're at the forefront of that technology, which enhances Halliburton's value, but it doesn’t change the outlook for activity.

Understood, understood. Jeff, you've obviously been on the road quite a bit internationally. You expect 10% year-over-year growth this year. I was wondering if you could give us any qualitative or even quantitative thoughts on how you think international spending trends in 2025 for industry and how is growth prospects internationally next year?

Look, they look strong for next year internationally. I mean, we see a lot of projects that are either just now being hindered or activity going into next year and in some cases, it takes a while to get the international up and going. And so, probably the activity that picks up will be where it's sort of NOC driven, which would look in some cases like obviously the Middle East. Others where IOCs are engaged, it takes a lot of negotiation, contract extensions for them. I'm seeing meaningful work. I just talked about my trip to Europe, Africa, and I see meaningful step-up there. Still excited about Latin America and what's possible there. And so, no, I feel really confident both in Halliburton's outlook for ‘25 and the industries.

Great. Thanks a lot.

Yeah, thank you.

Yeah, good morning, team. Jeff, I guess the first question just building on North America, what do you think is going to be the driver that forms the bottom in activity? I think you alluded to some of those points around M&A and natural gas, but maybe you can unpack that more. And are you seeing any green shoots in customer conversations that would suggest that $2.8 trillion is the bottom?

I believe many customers are currently developing plans for 2025. To provide some context regarding capacity and industry structure, which is important for our services, new equipment is not being produced while older equipment is gradually being phased out. As I mentioned, we are reducing fleets this quarter, leading to a decrease in capacity availability that is occurring in real time across the industry. Looking ahead to next year, I do anticipate more activity as companies establish new plans. I foresee assets moving to new teams, and I have faith in the resilience of North American entrepreneurs. Additionally, I expect an uptick in gas activity next year, with at least stability rather than a downturn. Overall, I believe a modest amount of activity could help solidify the situation.

Thanks, Jeff. And then just to follow up, it was a very good quarter for free cash flow and the company has been very consistent around $250 million of return of capital. So there's probably two parts to that question. One is, how should we think about working capital in the balance of the year and how should we think about your commitment to returning capital to shareholders?

Yeah, Neil, it's Eric. So as we said in terms of the working capital, I mean the working capital will evolve in a way that is consistent with our overall guidance of free cash flow being up over 10% compared to last year. We had more of a working capital headwinds in 2023, so that's a significant delta between the two years. And as an organization, we continue to focus on the overall efficiency of working capital as a whole. In terms of cash return, we bought back $250 million in Q1, $250 million in Q2, and I think generally speaking, it's a good kind of guiding point in terms of what we intend at this stage to do for the remaining of 2024.

Thanks, Jeff.

Hey, good morning, Jeff.

Good morning, James.

So, Jeff, as you consider North America moving into next year, I am becoming more optimistic about the outlook for 2025 and definitely for 2026, given the current state of oil and gas prices, which are expected to recover. Additionally, we are experiencing a significant demand for power from the tech industry. I believe the tech sector is more connected to the oil and gas industry than ever before. I'm interested in hearing about your discussions with customers regarding how they plan to bring gas to market, how they intend to size crews or equipment, and prepare for the anticipated surge in demand. Additionally, how are they planning to align this with the construction of more natural gas-fired power generation to support data centers and AI needs? How are your conversations progressing in this regard?

There is a lot of conversation about how to handle gas. I believe that data centers and their alignment will eventually impact gas usage. It appears to be easier to install data lines than gas pipelines. Gas is an exceptional resource for this country, and I think this approach is definitely the right direction. Regarding timing, I believe this will progress in due time. It’s still early to fully understand the implications for plants, but I expect everything will come together in a way that the reduced reliance on gas will create more opportunities for oil in the Permian Basin. I share your enthusiasm for what data centers and AI mean for our industry concerning natural gas usage, and we are in a good position to observe these developments closely and with excitement.

Got it. Okay. That makes a lot of sense. And then iCruise, you mentioned adoption. Now, I mean, we had great adoption internationally, but it sounds like you're getting better adoption in the US as well. Could you maybe highlight, kind of, what you're seeing with the iCruise and technology and how that's unfolding?

Yeah, thanks. Look, man, I'm really pleased with the technology in North America and I really like the way we're going to market with it because you were going to market with full services, our own services, we’re also selling direct sales and some rentals and that tells me three things about the technology. It tells me, A, it's in high demand. B, it tells me that it's very reliable because we could sell it that way and C, it's delivering performance. And I'm really pleased with the customers that are adopting it because in my view, this kind of adoption is really, these are the gold standard of, in my view, drillers that, good drilling organizations that pick this tool up and say, wow, we really like it. We want more of it. And so, like I said, I think we've got a really good runway around drilling in North America and it's all rooted in sort of investments we've made over quite a few years, but I believe we're there today.

Got it. North America is a nice cash flow machine for you guys. Thanks, Jeff.

Thank you.

Hey, good morning.

Good morning, Luke.

Hey, morning. If you kind of revised the international outlook a little bit for this year, could you walk us through some of the puts and takes that have unfolded, or is some of this just a push into ‘25 on the spend?

Well, look, we're sort of halfway through the year and we've got really good visibility into the balance of the year. And so I didn't think we'd hit the high end of the range. So wanted to tighten that up for you guys as we look out. Q4 will be the highest international quarter we have, typically with software sales and tool sales. But day in and day out, we're continuing to grow, and we're very focused on profitable growth. And as I think I alluded to earlier, my expectation is that we see a continuing march internationally of growth. And oil prices say that, our clients are saying that, my own project inventory is saying that. So if you describe it as a push, that's one way to think about it. But just from where we sit today, I know what we can get done, and I thought it would be worthwhile to narrow that a bit.

Okay. And then you touched on it a little bit earlier, but could you walk through some of the various unconventional international opportunities you're seeing develop over the next two or three years?

Certainly. Saudi Arabia and Argentina are currently significant markets that are performing well. I'm excited about the developments in the broader Middle East, which spans from the Mediterranean to Saudi Arabia, covering a vast area. There’s considerable activity being discussed, and we are right at the center of those discussions, leveraging our extensive experience. What differentiates the current landscape is our ability to understand the testing process. In the past, there have been many starts and stops in international efforts, but we now have a proven model in two international markets that successfully transitions from initial stages to becoming significant contributors to production. This approach is being noticed in other regions with good reservoirs and rock formations, as they thoughtfully consider what is needed to progress effectively. Overall, this represents a more constructive dialogue compared to erratic efforts globally. The operators involved are serious players with a long-term perspective.

Okay. Thanks, Jeff.

Thank you.

Hi. Good morning, Jeff and Eric.

Good morning, Saurabh.

Hey, Saurabh. How are you?

Good. Thank you. Maybe, Jeff, I'll start with a question on D&E margin. Obviously, Eric, you guided to the third quarter, but anything beyond that, not just fourth quarter, but ‘25, how should we think about margin expansion opportunity because this is a primarily international driven business, right? How should we think about the impact from net pricing improvement, technology uptake? I know you talked about Landmark, right? But just help us a little bit with the margin expansion opportunity in D&E.

Yeah, I think the way to look at D&E margins is really the progression on a year-on-year basis. There tends to be quite a bit of difference between different quarters as we recognize revenue around software impacts mostly Q1, Q4, et cetera. So it's really the year-on-year progression by quarter that you need to pay attention to from that perspective. We continue to improve the margins in D&E. We firmly believe that it continues as we get into next year. Jeff talked about the progression of the directional drilling business in North America. We continue to see progression and adoption of the new drilling technologies in the international markets as well. So directionally, we continue to be very confident in the growth of our D&E margins as we go into 2025.

When discussing our drilling business, we introduced iCruise, our new drilling tool, which has significantly increased our drilling capabilities compared to our legacy tools. Currently, about 60% to 70% of our fleet utilizes this technology. Additionally, there has been a corresponding boost in efficiency, performance, and margins tied to our iStar technology, which complements the iCruise. However, the adoption of iStar is still around 20%. We have a solid pathway to enhance our margins primarily in Drilling and Evaluation, and I’m confident that as we phase out older equipment and integrate new technologies, our capital efficiency will improve significantly.

Okay, fantastic. Now that's helpful. And just one on the production side of things. I know you talked about artificial lifting in your prepared remarks. Good to see international growing at a much faster pace than the overall international market for lift. But if we focus on the production chemicals side of things, I know you acquired Athlon, you've been investing time and money to expand that business, right? Maybe just update us on that, Jeff, where does the production chemicals fit and what's the opportunity just on that side for Halliburton?

Well, according to that business, it's clearly part of our portfolio, but it's also an inherently sort of lower returning business than the balance of our business. So we run it like all of our business with a focus on profitability and returns. I'm pleased at the pace we're filling our plant in Saudi Arabia. And that business has a long sales cycle. But we know a lot about chemicals and continue to execute that.

Okay, fantastic. Okay, Jeff, Eric, thank you. I’ll turn it back.

Thank you.

Thank you.

Yes, good morning.

Good morning.

Good morning.

I'm curious, diesel prices have come off a little bit and there's hopes for a natural gas price recovery next year. So, Jeff, I'm curious, what gas price would close the cost of fuel delta between e-frac when using CNG and traditional diesel? I don't think it's $4 or $5 gas. I want to check that with you and just overall how would you describe e-frac economics even in an environment of healthier gas?

There are a few factors to consider. Initially, the numbers are significantly higher. If we assume a Btu of 6 times, which results in 24 at $4, we're still far from diesel prices. Additionally, the efficiency of our technology is substantial. Our e-fleets are generating value that far exceeds the economic comparison with gas. This doesn't mean there isn't potential for improvement in the economic trade-off with gas, but that platform itself operates more effectively and offers technology to clients that they can't find elsewhere. Examples include AutoFrac, Octiv, and our advancements in sensory technology for recovery insights. We can accurately deliver what was originally planned and measure the performance of what was placed in the reservoir. This is a different scenario entirely, but it is all connected to the ZEUS platform. When I think about e-fleets in general, the gas price arbitrage is constantly occurring, and as I mentioned, there's still a considerable distance to cover regarding gas arbitrage before it becomes relevant. However, what matters more is what we're accomplishing with that technology for our customers.

Makes a lot of sense. And ultimately it sounds like Octiv and AutoFrac are going to help kind of further that ultimate penetration for e-frac with your customers and kind of extend any type of saturation point that ultimately could be hit. Just as you think a few years out, as you develop these softwares, develop a platform for a more efficient operation, where do you think e-frac goes as a percent of Halliburton’s fleet? And kind of when do you get there?

I believe we've discussed this already. We will exceed 40% this year and I anticipate reaching 50% next year. We are currently at scale, which enables us to enhance and expand the technology related to the pump, the power systems, and the software that addresses the key concerns of operators, particularly around recovery, placement, and various factors influencing productivity over time. We are consistently reinforcing our advantage in this technology. I am confident that as we move forward, we have a clear path of innovative ideas that will further enhance effectiveness for our customers in the long run. I am satisfied with our current position.

I appreciate the color, Jeff. Thank you.

Thank you.

Hello?

Doug?

Yes, can you hear me?

I can, good morning.

So, Halliburton's North America revenue is regularly outperforming the North America rig count. Just wondering if you could just highlight some of the key drivers of that outperformance that you expect going forward and really asking to try and calibrate how Halliburton's North American revenue might outperform the rig count next year.

A significant portion of our business comes from contracted e-fleets. Our performance has been strong in terms of efficiency and technology, and we continue to invest in ways that set Halliburton apart. This aligns with our strategy, which focuses on maximizing value in North America. We are very selective about our investments and expenditures, concentrating on initiatives that drive differentiation. Technology plays a crucial role, but it must be targeted—aimed at automating processes and enhancing subsurface understanding and measurements. This approach enables us to excel in revenue generation and maximize value. Our strategy remains unchanged, and I have strong confidence in Halliburton's position in the market through 2025 and beyond.

I mean, is it too aggressive to think about in a flat North America rig count environment? Halliburton’s revenue is still growing 5% next year in that type of environment.

It could be. We'll need to see how things develop next year. However, I believe our market performance will exceed expectations. It's early for 2025, but I am confident in the technology and unique solutions we provide for our customers, which positions us well to outperform.

Right. That completely makes sense. And then just a quick one on the e-fleets. We've been hearing more talk about white space even on dedicated or contracted fleets. Just wanted to get a little bit better sense for your e-fleets. Is there any risk of white space? I fully appreciate that they're long-term contracts and they justify the returns, but just thinking about any potential white space risk on those contracts.

No, that is not the case. Our clients have contracts with customers who have long-term programs, and they are going to use these e-fleets. If there were any gaps, this is the fleet that they will continue to utilize regardless. When you provide a lower cost of ownership and the client is dedicated to the fleet, that fleet is always operational. So, no, I'm not concerned about that.

That's what I wanted to hear. Thank you.

Thank you.

Thank you. My first question is about the activity outlook. Jeff, you mentioned there could be an improvement in the second half of 2024, but it seems like you're hesitant to discuss revenue. Following up on Doug's question, considering how challenging it is to predict revenue, is price uncertainty the main factor? Could you elaborate on the top one, two, or three uncertainties regarding revenue in comparison to activity?

I believe the uncertainty surrounding activity is the main factor here. Looking at the second half of the year, we've engaged with some customers who remain with us and intend to resume work next year, potentially as early as later this year. So, I’m not worried about that. My focus remains on our strategy to maximize value, and we have numerous technical tools to help us achieve that. It ultimately comes down to the pace of various developments, whether it's planning or other activities. However, I anticipate that 2025 will clearly show higher results compared to the latter half of 2024.

Okay, great. And then the other one I had, maybe this one's for Eric, but just looking at the third quarter guide for C&P, the margin reduction sequentially seems pretty steep for the revenue reduction we're getting. Could you talk about maybe some of the moving pieces there, what might be driving that margin weakness?

Yes, I mean, the margin guidance is actually a combination of what we talked about for North America, but really Q3 margins in the international business are going to be lower than Q2 as well. So there's just not too much to read into this except there's a lot of moving parts in the business. It's not just North America. It's multiple product lines as well. So it is not all related to North America.

Yeah. Great. Thank you. I'll turn it back.

Okay. Well, thank you. Let's wrap up the call here. I know all of you have a very busy day ahead of you, and maybe I'll give you a few minutes back before your next call. But as we close out today's call, it's important to step back and remember this. Halliburton delivered 18% margins and about $800 million of free cash flow in the second quarter. We're well on track to deliver 10% free cash flow growth this year. Our international business and its technology portfolio have never been stronger. Our strategy to maximize value in North America is working. We are committed to maximizing value, not market share, and I expect that strategy continues to deliver strong returns. Look forward to speaking with you next quarter.