Halliburton Company (HAL) — Q2 2025 Earnings Call Transcript

Hello, and thank you for joining the Halliburton Second Quarter 2025 Conference Call. We will make the recording of today's webcast available for 7 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 that reflect 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, 2024, Form 10-Q for the quarter ended March 31, 2025, 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. I will open today's call with a discussion of the oilfield services market, which appears very different today than it did only 90 days ago. In the second quarter, commodity markets were volatile, driven by trade and tariff uncertainty, geopolitical unrest and the accelerated return of OPEC+ production cuts. Against this backdrop, here's what I observe in the market today, which directly influences my outlook. In North America, multiple operators, even large and established customers, are now planning meaningful schedule gaps in the second half of 2025. In international markets, particularly among some large NOCs, we continue to see reductions in activity and lower discretionary spend, typical of much lower commodity price environments. And finally, we've seen several well-publicized reorganizations and cost reduction efforts by large independent operators and IOCs. To put it plainly, what I see tells me the oilfield services market will be softer than I previously expected over the short to medium term. We will, of course, take action to address this near-term softness. That said, I believe the demand fundamentals remain strong for both oil and gas. I expect conditions will improve as additional OPEC+ production is absorbed by the market, and operators around the world work to replace declining production and meet increasing demand. As I look ahead, I believe that Halliburton is well aligned with the themes that I expect will define the next several years. First, unconventionals will continue to be a critical component of the supply picture. I expect that advanced technology to maximize recovery and returns will expand both in the United States and around the world. Second, production-related services like intervention and stimulation along with artificial lift will grow alongside increased global production of both oil and gas. Third, I expect demand will rise for complex drilling and well construction services to access available resources. This requires advanced tools and automation technologies for efficient development and delivery. I believe our strategic alignment with these themes positions Halliburton to deliver industry-leading returns. I fully expect that the strategic execution that delivered performance in recent markets will continue to deliver outperformance in the future. Now let's move on to our geographic results. I'll start with the international markets, where Halliburton delivered quarterly revenue of $3.3 billion. The second quarter demonstrated 2% sequential growth with activity increases in Latin America and Europe, Africa, offset by activity reduction in Saudi Arabia. As we look at the full year 2025, I expect our international revenue will contract by mid-single digits year-on-year primarily driven by activity reductions in Saudi Arabia and Mexico. Despite the ongoing softness in these large markets, I do expect Halliburton to demonstrate growth in Brazil and Norway, as well as offshore frontier basins, where we secured key wins last quarter through our technology, operational excellence and collaborative approach. Thinking broadly about our international business going forward, our growth engines, unconventionals, drilling, production services and artificial lift remain key to our international strategy, and we believe Halliburton has unique opportunities to grow in each of these areas as evidenced by our recent progress. In unconventionals, we continue to see adoption of North America style development, multi-well pads, long laterals and large completions in several international unconventional basins, which reinforces our confidence in our unique ability to lead in unconventionals. In Argentina, we achieved a record quarterly stage count and performed our first sensory fiber optic fracture monitoring service, a milestone in expanding our leading unconventional technologies outside of North America. In Australia, we recently completed a 67 stage stimulation, the largest job to date in the Beetaloo Basin. And in the Middle East, we drilled the longest well in the region's largest unconventional play. Turning to Drilling Services. iCruise, LOGIX Automation and the iStar platform delivered strong performance and introduced unique capabilities in several technically demanding markets. Globally, we surpassed 0.5 million feet drilled with LOGIX closed-loop automation and completed an important trial with a customer in the Middle East. In Norway, we recently utilized iCruise and LOGIX to drill the longest well in the Norwegian continental shelf to a measured depth of over 10 kilometers. In reservoir mapping, we launched EarthStar 3DX. It builds on our leading EarthStar X and Brightstar mapping technologies and provides a 3-dimensional map ahead of the bit while drilling. This unique capability allows proactive steering around hazards and precision wellbore placement for optimum drilling efficiency and recovery. Next, in Production Services, we had several activity highlights during the second quarter. In Brazil, we began operations on our largest integrated well intervention contract which highlights the expansion of our collaborative model from well construction to production. In Norway, we expanded our riserless coiled tubing services beyond our initial pilot and completed a 3-well intervention campaign for a customer. Finally, in artificial lift, Halliburton secured its largest international ESP contract to date from a Middle East NOC. Middle East Asia remains our largest and fastest-growing international lift region with strong year-over-year growth also achieved in Latin America and Europe, Africa. We expect International artificial lift revenue to grow over 20% this year and plan to double the installed base of Intelivate, our remote operations and automation platform. It has been a strong start to the year, and I expect to exit the year with an international franchise that is larger than all of Summit at the time of acquisition, a significant milestone in our growth journey. To conclude my thoughts on the international market, while activity reductions in a few large markets will likely overshadow the solid performance of other geographies, I am confident our strategy is the right one and our growth engines remain key to that strategy. Now let's turn to North America, where our second quarter revenue of $2.3 billion was roughly flat to first quarter. Seasonal improvements in completions were offset by lower service pricing and reduced artificial lift activity. As we look at the remainder of the year in North America, we expect that revenue in the second half will decline due to lower drilling and completion activity. This comes in the form of more white space in our frac calendars, the full period effects of recent service pricing reductions, and the stacking of frac fleets that do not meet our returns threshold. While increases in gas activity are likely to absorb some service capacity this year, it is unlikely to offset the decreases in oil-directed activity. We now forecast full year North America revenue to decline low double digits year-over-year. In this environment, differentiation has never mattered more. Halliburton's leading technology remains an important differentiator for us. This quarter, we were pleased to see Chevron announce their ZEUS IQ closed-loop fracturing milestone in the Rockies. Customer enthusiasm is strong, and we are actively deploying ZEUS IQ across our U.S. operations. I expect up to one-third of our ZEUS electric fleets to operate with ZEUS IQ by year-end, a strong endorsement of a technology that debuted only a quarter ago. In North America drilling, iCruise and LOGIX Automation enable our customers to maximize the value of their assets by consistently delivering curve and lateral sections on today's longer wells. This performance has driven rapid growth in our U.S. land rotary steerable business and double-digit revenue growth in North America drilling services, even amid rig count declines. To finish my thoughts on North America, activity reductions will affect the oilfield services market this year. I am confident in our plans to take the necessary actions to address these headwinds. My customer conversations tell me technology and service execution are key to maximizing the value of their assets. And I believe Halliburton has unmatched capability to deliver both of these at scale, which is why I am confident we will deliver returns in North America that outpace our competitors. For both the international and North America markets, here's how I plan to address the near-term softness. First, we will not work equipment where it does not earn economic returns, and this includes North America frac fleets. Second, we will reduce our variable and fixed cash costs over the quarters ahead to size our business to the market we see. And finally, we will remain focused on free cash flow and returns and will remain diligent stewards of capital. Before I turn it over to Eric, let me close with this. I am confident in Halliburton's future. Today, we are more differentiated with deeper technology advantages to address our customers' requirements and more collaborative than ever before. I believe our value proposition to collaborate and engineer solutions to maximize asset value for our customers is a powerful driver of both customer and shareholder value. With that, I'll turn the call over to Eric to provide more details on our financial results.

Thank you, Jeff, and good morning. Our Q2 reported net income per diluted share was $0.55. Total company revenue for Q2, 2025 was $5.5 billion, an increase of 2% when compared to Q1, 2025. Operating income was $727 million, and the operating margin was 13%. Our Q2 cash flow from operations was $896 million, and free cash flow was $582 million. During Q2, we repurchased approximately $250 million of our common stock. Now turning to the segment results. Beginning with our Completion and Production division, revenue in Q2 was $3.2 billion, an increase of 2% when compared to Q1, 2025. Operating income was $513 million, a decrease of 3% when compared to Q1, 2025, and operating income margin was 16%. Revenue increased largely due to seasonal improvement in pressure pumping activity in the Western Hemisphere. The decline in operating income was primarily driven by lower pricing for stimulation services in U.S. land. In our Drilling and Evaluation division, revenue in Q2 was $2.3 billion, an increase of 2% when compared to Q1 2025. Operating income was $312 million, a decrease of 11% when compared to Q1, 2025 and operating income margin was 13%. Revenue increased due to higher drilling-related services globally. Operating income decreased due to seasonal roll-off of software sales and increased startup and mobilization costs across multiple product service lines. Now let's move on to geographic results. Our Q2 international revenue increased 2% sequentially. Europe-Africa revenue in Q2 was $820 million, an increase of 6% sequentially. This increase was primarily driven by higher activity across multiple product service lines in Norway. Middle East Asia revenue in Q2 was $1.5 billion, a decrease of 4% sequentially. This decrease was primarily due to lower activity across multiple product service lines in Saudi Arabia and Kuwait. Latin America revenue in Q2 was $977 million, a 9% increase sequentially. This increase was primarily due to improved activity across multiple product service lines in Mexico and Brazil, and increased well intervention services in Argentina. In North America, Q2 revenue was $2.3 billion, relatively flat when compared to Q1, 2025. Slightly higher well construction activity, completion tool sales, and stimulation activity in the region were offset by lower artificial lift activity and software sales. Moving on to other items. In Q2, our corporate and other expense was $66 million. We expect our Q3 corporate expenses to increase by about $5 million. In Q2, we spent $32 million on SAPs for migration, which is included in our results. For Q3, we expect SAP expenses to be about flat. Net interest expense for the quarter was $92 million. For Q3, we expect net interest expense to be approximately flat. Other net expense for Q2 was $24 million. For Q3, we expect this expense to be about $45 million. Our effective tax rate for Q2 was 21.4%. Based on our anticipated geographic earnings mix, we expect our Q3 effective tax rate to be approximately 23.5%. Capital expenditures for Q2 were $354 million. For the full year 2025, we expect capital expenditures to be about 6% of revenue. In Q2, tariffs impacted our business by $27 million. For Q3, we currently expect a negative impact of about $35 million, or about $0.04 per share, which is included in our guidance. Now let me provide you with comments on our Q3 expectations. In our Completion and Production division, we anticipate sequential revenue to decrease 1% to 3%, and margins to decrease 150 to 200 basis points. In our Drilling and Evaluation division, we expect sequential revenue to also decline 1% to 3%, and margins to improve 125 to 175 basis points. I will now turn the call back to Jeff.

Thanks, Eric. Let me summarize the key takeaways from today's discussion. First, we are aligning our business with the current market conditions. We will reduce costs and retire, stack or reallocate underperforming assets. Next, internationally, we see strong performance in our growth engines unconventionals, drilling, production services and artificial lift. We secured key wins last quarter through our technology, operational excellence and collaborative approach. In North America, the ZEUS platform and iCruise continue to differentiate Halliburton by delivering unique value to our customers. Combined with our ability to execute at scale they reinforce our position as the leading services company. And finally, we remain focused on returns, capital discipline and free cash flow. And now let's open it up for questions.

The first question is about C&P margins. They were slightly lower this quarter, and we appreciate the Q3 volume guidance. Could you provide more details on what is contributing to that, and how can we get it moving back in the right direction?

Yes, Neil, it's Eric. Let me provide some details on the C&P margins compared to our guidance for Q2, and then I'll share more about the Q3 forecast. Starting with Q2, we were generally in line with our revenue guidance, but our margins were a bit lower than expected, falling short by about 80 basis points. On the revenue side, we saw growth in most regions and product lines within the C&P division, with two notable exceptions: Saudi Arabia and the artificial lift business in North America. The decline in Saudi Arabia was related to a decrease in fracking and associated services, likely due to a slowdown in the Jafurah area prior to the awarding of a new tender. Additionally, softer margins were influenced by pricing pressures in U.S. land and the drop in activity in Saudi. However, this was somewhat balanced by the strong performance of our cementing and completion tool product lines, which ultimately led to a small margin miss. That's the overview of our performance relative to the Q2 guidance. Now, looking at Q3, we are projecting a revenue decline of 1% to 3% and a margin reduction of 150 to 200 basis points. There are three key factors contributing to this outlook. The first is reduced activity and pricing softness in North American land pressure pumping, which includes both fracking and cementing. The second factor is a decrease in completion tool deliveries in various international markets, though there is an increase in deliveries in the Gulf of America, reflecting the usual cycle of drilling versus completion. Lastly, as mentioned earlier, the decline in fracking activity in Saudi Arabia also impacts this quarter.

And so maybe, Jeff, for you, a quick question is just can you help us walk through your customer conversations about the white space as you think about the back half of the year in North America for the frac side of the business? And any early thoughts on 2016? I know it's a really volatile macro, but you probably have some great perspective as you talk to your most important customers.

Yes, definitely. In terms of conserving cash, there's been significant reorganization and activity taking place. Customers are generally cautious with their budgets. However, they emphasize that technology and service quality are the top priorities, which benefits Halliburton. The technological advancements we have made are crucial. Looking ahead to 2026, it's still early to determine exactly what customers will do given the current volatility. However, I anticipate increased activity earlier in the year compared to Q3 and Q4. As for making substantial investments, I don't foresee that happening until we see some catalysts that positively influence our price outlook.

I'm curious, Jeff, about the current status of these E&Ps resetting their programs. You've mentioned some significant schedule gaps approaching. We've observed a steady decline in oil prices over the past few months. Should we anticipate a bottoming out in the fourth quarter? Additionally, could you provide more insight on pricing? Last year, there were concessions made to maintain fleet contracts. Given the current situation, are they looking to renegotiate? It seems you've stepped away from some projects. Does that imply you're phasing out the remaining diesel fleets? Sorry for the numerous questions in one.

Yes, those are good questions, Dave. Let me start by discussing our outlook in terms of the cycle and where we are relative to hitting a bottom. We need to consider the supply and demand fundamentals. We project solid growth in oil demand, but there is also spare capacity entering the market, especially with U.S. production levels remaining high. As demand begins to consume that spare capacity and we observe production declines in some key markets, we will have indicators about where a bottom versus a recovery might occur. I believe it becomes a matter of duration and intensity; if there’s a sharp decline, we can expect a swift recovery. Therefore, we must pay attention to those indicators. Currently, we are below maintenance levels in North America and particularly in Mexico and some other significant markets globally. I expect that trajectory to recover. Regarding pricing, we are at a point where we can make choices. We are deciding which equipment to keep operational and which to stack. We won't operate at uneconomic levels, as that wears out equipment and leads to safety and environmental risks, which we want to avoid. Those are the measures we are implementing at this time, Dave. That's where we currently stand.

No, that makes sense, Jeff. If I could shift to international markets, you mentioned unconventionals several times, including Argentina, Australia, and obviously Saudi Arabia, which is the one we're all watching closely. Could you provide some insight into how significant this currently is in your international portfolio and how large it might become in a few years? I'm trying to get a sense of whether it's around 10% of international revenue at this point and what the future potential looks like.

Yes. I think there's significant opportunity in Argentina and Saudi Arabia, but it extends beyond those two countries. Argentina, in particular, has shown a lot of potential as it attracts a diverse range of customers, leading to considerable growth. Today, it's recognized as a substantial and technology-driven market. We anticipate growth in other regions as well. We've observed solid year-on-year growth, particularly in our international frac business, outside of the U.S., which has been in double digits. Countries like Australia and the UAE present considerable opportunities, along with various parts of North Africa that are favorable for unconventionals. Additionally, gas demand is expected to drive growth in these markets, where unconventionals will likely be influenced more by gas demand than anything else.

I wanted to ask if you could provide more details on your comments regarding unconventionals, particularly in the Middle East. I know EOG is planning to test an unconventional play concept in the UAE, and I’d like to hear your thoughts on how you are positioned for the upcoming Jafurah tender, which will involve significantly increasing the number of stages. How crucial do you think technology will be in that tender, and when do you anticipate a rebound in activity in Saudi Arabia?

Yes. From an unconventional perspective, we are well positioned in the Middle East for unconventional resources, both in terms of equipment and technical expertise. We're starting work around the fourth quarter in the UAE, which will serve as a technology showcase, particularly with ZEUS IQ and other innovations. I won’t comment specifically on Jafurah, other than saying it is currently in process. We are applying a very disciplined approach to work bids, which is important to remember. Our focus is on ensuring long-term returns rather than just increasing volumes. We have a solid understanding of current pricing and fracking dynamics. When it comes to competitive tenders, by the time they are announced, they tend to be quite competitive. Nonetheless, we appreciate the frac work we’re conducting internationally and are particularly excited about the interest in our technology. For instance, in Argentina, clients are not just interested but are actually purchasing our technology, which assists in optimizing fracture placements and improving recovery rates.

Great. Jeff, my follow-up just on the portfolio. I know in the last 10-Q, you commented on the focus on Halliburton maybe to market a portion of its chemicals business, but just thoughts on pruning of the portfolio?

Look, we want to be investing in the things that we believe show the best returns for us and the best sort of opportunity for growth and returns. And so we do. We bring the portfolio from time to time. We really like what we're doing with lift. And we think the ESP lift in particular is the most attractive, certainly for us. And as we look at other parts of our portfolio where we don't see necessarily, we don't see the opportunity for the kind of accretive returns that we would like, we take a hard look at it.

Looking at the North American outlook, I acknowledge that there are several challenges this year regarding rig and frac counts. However, we did experience some tax reform through the big better bill, which several E&P companies have indicated should positively impact their free cash flow. As we consider your outlook as it stands today through year-end, and with the expectation that commodity prices may remain stable, it raises the question of whether this could improve the risk profile of your outlook. In other words, could these factors provide meaningful support, or do you believe that the visibility is actually quite clear, leading to a strong expectation of significant softness by year-end?

I don't believe that the significant bill plays a major role in customers' plans. Their decisions will likely be more influenced by budget and commodity trends, along with returns. Looking at the market, we have an excellent group of serious customers with strong strategies. If there are opportunities, they will be focused on managing their budgets. The planning for 2026 is still uncertain for them, but we know these customers will be active in the market. When we notice these opportunities, we might temporarily stack resources or reallocate them for better returns. In some cases, we might decide to maintain a stacked approach. Therefore, we need to closely monitor the balance of supply and demand. The overall production trends in North America will be a key factor in shaping our outlook for 2026.

Yes, that makes sense. Regarding your comments about avoiding uneconomic work, this sector has typically prioritized gaining market share over focusing on returns or margins. Should we expect a different approach this time, emphasizing the maintenance of margins and returns instead of engaging in a market share battle?

We are focused on maximizing value and returns in North America, which means we won't engage in uneconomic work. This strategy mirrors what we implemented a year ago in the gas markets, and it is something we will continue to pursue. Our goal is to ensure that when the market rebounds, we have quality equipment that generates profits. This is a consistent approach for us, one we have taken before and will definitely take again.

Jeff, or Eric, maybe. I want to spend a little time on the cost side of things. I know you have worked hard to variabilize your cost structure in North America and yet you did speak to reducing your variable and fixed cost, right? But how should we think about what kind of level of activity that you would be using to frame what you think you can take out of your cost structure? Or put differently, how should we think about protecting margins? Maybe overall, maybe in C&P, however, you want to talk about that?

Yes, we are actively considering our variable costs in response to the current market conditions. While it's not an exact science, as activity decreases, we aim to reduce equipment and costs. This is just one part of our strategy. On the other hand, we still have a fair amount of activity worldwide. Our focus on improving margins and efficiency aligns with what our customers are doing, a strategy we have successfully implemented before and plan to continue. To put it in perspective, we expect to operate within a 1% reduction range as we begin this process, which may take a couple of quarters as we adjust to the market's dynamics. We believe we have a solid understanding of the necessary reductions, but we'll need time to see how this unfolds.

Got it. Okay. Jeff, my other question for you is about the Saudi market. We've seen the rig count in the country decrease. It's hard to speculate on where it goes from here. However, I've heard that the Saudi market could evolve to become more or less traditional key performance indicators over time as activity returns, or even if it doesn't. I'm not sure, but as a philosophical question, if that happens and Saudi becomes more LSTK while the Middle East in general shifts as well, how does Halliburton fit into that market? Is it beneficial for Halliburton, or do you need to change your approach? Could you provide a high-level comment on that?

We have very strong capabilities in that area, and we have been successful in our approach. Our project management organization is performing at its best. We engage in a lot of collaborative projects and LSTK work. In fact, this type of work now accounts for over 20% of our international business. Therefore, I believe this aligns well with our strengths, making it advantageous for us. I want to reiterate that our tendering process is highly disciplined and focused on returns. Prioritizing volume and market share at the expense of returns is not beneficial. We will continue to be very careful in evaluating these factors to ensure we can achieve a solid return. Our current capabilities are strong, and I am genuinely pleased with the direction of that segment of our business.

I wanted to ask about the figures you provided for the third quarter and your outlook for North America and international markets. It seems to suggest a significant decline in the fourth quarter to reach the numbers you mentioned. I'm curious about how much visibility you have on this right now. Are you seeing a more significant decline in international markets compared to North America as we look towards the fourth quarter?

Marc, it's Eric. So we're not going to give you an exact guide on what Q4 looks like. There are a lot of moving parts that we touched on today is what the U.S. activity is going to look like, the among white space, the activity in Saudi. Mexico is kind of being on and off, et cetera. So a lot of things can happen between now and Q4 that will shape Q4, how Q4 looks like. But directionally, to give you some color, we're looking at probably kind of flattish revenue at best, it would seem. We'll see a reduction in C&P revenue, an increase in D&E revenue. Margin will continue to soften probably in C&P because of the amount of white space in the U.S. frac market, Jeff talked about. We will see a continued strengthening of the D&E margin on top of what we did in Q3. And we'll see the usual seasonality that we see Q4 over Q3. So frac in the U.S. tends to come down. Software sales will pick up materially, and then typically completion tools in the C&P division go up as well. So that's kind of how we look at Q4 at this point in time.

Okay. And I guess given the cost actions you're taking and the efforts you're making to sort of manage through the market, do you think that C&P margins can hold above double digits as we exit the year?

Yes.

Yes. Yes. No, for sure. Yes.

Absolutely.

I just want to follow that last line of questioning. Eric, the margin improvement, you mentioned in D&E in 4Q, is that going to be largely just seasonal factors, some more software sales, et cetera? Or is there any of the mobilization expense and contract start-up costs that weighed on 2Q? Is there an element of those costs still impacting 3Q? Or most of those in the rearview mirror now?

I believe that Q4 will reflect a continuation of Q3, with a significant improvement in margins driven by software sales. If we look closely at the Q3 guidance for D&E and the anticipated improvements, we expect a margin increase of 125 to 175 basis points. Several factors are influencing this. First, there has been a decrease in activity in Saudi, which poses a challenge for us. Secondly, there is a shift in the dynamics between drilling and completion cycles. While we expect an uptick in Gulf of Mexico completions, this is somewhat offset by a decline in drilling fluid business, which is substantial for us in the Gulf of Mexico and Europe. The three main contributors to margin improvements in Q3 include the beginning of software growth, a global enhancement in our directional drilling operations, and the removal of mobilization costs that negatively impacted margins in Q2. This provides some insight into Q3 and Q4 from a D&E standpoint.

I appreciate the information about how you're adapting to the current environment. Capital expenditures should be decreasing due to lower sales. Is there a plan to pause the ZEUS fleet expansion either in the second half of this year or next year? Considering that investment annually, how much would capital expenditures decrease if that program has concluded?

Yes, I believe that program has always been driven by demand, meaning we've only built equipment for contracts that we had secured. It has been more of a response to demand than a structured program. If we don't see demand for new equipment, that will obviously affect us. Regarding any other matters, we anticipate reducing capital expenditures to the lower end of our range as we move into 2025 or even 2026. I expect the pace of the ZEUS fleet expansion to slow down since we have already achieved about 50% of our target fleet and the current portfolio we possess.

And is it kind of $40 million, $45 million of fleet in terms of what you'd say is?

About ballpark.

So there's a lot of interesting comments on artificial lift on the call. You're seeing some bifurcation, seeing softness in the U.S. land, but significant growth internationally. Can you maybe walk through the puts and takes in each region there? Are you seeing tariffs maybe bite into the U.S. land artificial lift market? International, is that more of a function of the increasing unconventional activity? Just maybe some color on artificial lift, U.S. versus international?

The demand for artificial lift is driven by the need to accelerate production. It is not primarily about unconventional techniques internationally; rather, it focuses on utilizing advanced technology in conventional wells to enhance oil production. When we acquired Summit, they lacked an international presence, but we have been able to successfully expand that business into new markets thanks to the technology, performance, and automation that Summit developed. In the U.S. market, we will be somewhat influenced by the current activity levels. Additionally, tariffs do have an impact on the market.

Yes. On the tariff side of things, as we said, Derek, we expect tariffs to go up a bit in Q3. Artificial lift is probably the largest component of the tariffs for us today. So our team in Summit and our supply chain team are working hard, trying to kind of rewire part of the supply chain around what they source from China, but it's going to take a couple of quarters to work through.

Got it. Very helpful. Appreciate it. And then just a question on two regions. So you talked about Mexico being a source of strength here in the quarter, with LatAm up 9%. I was surprised with that. So maybe can you just give us an update on Mexico, seeing a lot of new slots of the country and where we are with that? And then separately, Kuwait. You pointed as a sign of a bit of softness, which I was surprised about given it was one of the bright spots that's been talked about over the last quarter. So maybe just your thoughts on where you see for Mexico go forward and Kuwait?

Look, Kuwait overall is a solid market and it will bounce around from month-to-month, quarter-to-quarter. But ultimately, we see growth in Kuwait. No question about growth in Kuwait, and we do important work in Kuwait. Today and expect to do more of that in the future. From a Mexico perspective, we saw a solid improvement in LatAm, but it was not Mexico. And so solid performance in Mexico. I mean, with the issues in Mexico, in my view, aren't settled. And so I think we see starts and stops in Mexico. And I've been to Mexico. I've met with the management team there. I think what we're going to see is decline rates at a pace that create sort of pressure to reactivate the business there. And oil and gas is obviously critical to the economy of Mexico, and I think that will drive recovery.

So I have two questions. First, Eric, I’m not sure if you can comment on this, but the guidance you provided for the various geographies and segments suggests that C&P is expected to experience a decline of over ten percent in the fourth quarter to achieve that. Is that correct?

Yes, it's about right.

The other question is about how we are thinking about pricing in U.S. pressure pumping, especially as we enter the fourth quarter and look ahead to 2026. How do you engage with customers regarding the service quality and the quality of assets you are delivering in what is expected to be a soft market? As you contract these services out into 2026, what pricing strategy will you implement to maintain margins in that environment?

I'm not going to discuss the specifics of our pricing strategy here. However, we do consider the value we create for our customers and look for opportunities to enhance our technology and how that adds value. If we find that our pricing does not allow us to achieve economic returns, we will choose not to proceed. This gives us a degree of flexibility regarding our position in the market.

And just one quick one. We've heard kind of maybe fleet attrition is accelerating a bit. Are you seeing that in the overall market?

Yes, I do expect it to accelerate in this market, and to some extent, it always aligns with the existing market conditions. Equipment will be retired and often repurposed for spare parts and other uses, which is how it gets utilized. Additionally, fracking and gas operations put more strain on equipment compared to oil due to higher pressures, leading to quicker wear and tear on the equipment. Therefore, we are very strategic about our pricing and the allocation of our equipment for these reasons.

Jeff, Eric, just given the updated outlook, I wanted to get your thoughts on free cash flow this year. And does the commitment to the cash returns framework explicitly mean the $1.6 billion cash return targets still intact?

Yes, we've noticed a bit of a softening in the market, so we've adjusted our outlook for free cash flow in 2025. We're currently estimating a range between $1.8 billion and $2 billion. That's how we are approaching it. We don't see anything that would alter our view on returning cash to shareholders. By the end of Q2, accounting for the second half of the year's dividend, our return will exceed 50%. We will likely continue at our current pace. That's our perspective on free cash flow and returns.

Thank you, Howard. Look, before we wrap up today's call, let me leave you with a few thoughts. Despite industry cycles, I believe the demand fundamentals remain strong for both oil and gas. Today, Halliburton is more differentiated with deeper technology advantages to address our customers' requirements, and more collaborative than ever before. Those are powerful drivers of both customer and shareholder value. Throughout the cycles, Halliburton will remain focused on free cash flow and returns. I look forward to speaking with you next quarter. Howard, please close out the call.