Halliburton (HAL) Q2 2024 Earnings Name Transcript

Halliburton (HAL -4.78%)
Q2 2024 Earnings Name
Jul 19, 2024, 8:30 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Good day and thanks for standing by. Welcome to the second quarter 2024 Halliburton earnings name. Presently, all individuals are in a listen-only mode. After the audio system’ presentation, there will likely be a question-and-answer session.

[Operator instructions] Please be suggested that in the present day’s convention is being recorded. I might now like at hand the convention over to David Coleman, senior director, investor relations. Please go forward.

David Coleman — Senior Director, Investor Relations

Hey, and thanks for becoming a member of the Halliburton second quarter 2024 convention name. We’ll make the recording of in the present day’s webcast accessible for seven days on Halliburton’s web site after this name. Becoming a member of me in the present day are Jeff Miller, chairman, president, and CEO; and Eric Carre, government vice chairman and CFO. A few of in the present day’s feedback might embody forward-looking statements reflecting Halliburton’s views about future occasions.

These issues contain dangers and uncertainties that would trigger our precise outcomes to materially differ from our forward-looking statements. These dangers are mentioned in Halliburton’s Type 10-Okay for the 12 months ended December 31, 2023, Type 10-Q for the quarter ended March 31, 2024, latest present reviews on Type 8-Okay, and different Securities and Change Fee filings. We undertake no obligation to revise or replace publicly any forward-looking statements for any cause. Our feedback in the present day additionally embody non-GAAP monetary measures.

Extra particulars and reconciliation to essentially the most straight comparable GAAP monetary measures are included in our second quarter earnings launch and within the quarterly outcomes and presentation part of our web site. Now, I will flip the decision over to Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks, David, and good morning, everybody. Halliburton delivered stable second quarter outcomes that demonstrated the power of our worldwide enterprise and the differentiation of our North America service choices. Listed below are the quarter highlights. We delivered complete firm income of $5.8 billion and working margin of 18%.

Worldwide income was $3.4 billion and grew 8% 12 months over 12 months, led by Latin America, which delivered a ten% improve. North America income was $2.5 billion, an 8% lower 12 months over 12 months in comparison with a 12% decline in rig depend over the identical interval. Our Drilling and Analysis division and our Completion and Manufacturing division each demonstrated margin enchancment 12 months over 12 months. Lastly, through the second quarter we generated $1.1 billion of money stream from operations and about $800 million of free money stream and repurchased $250 million of our frequent inventory.

I will start our dialogue with the worldwide markets, the place Halliburton’s technique of worthwhile development delivered one other stable quarter. Worldwide income grew 8% 12 months over 12 months, with development demonstrated by every area. This marks the twelfth consecutive quarter of year-on-year development in our worldwide enterprise. As I look forward for the rest of this 12 months, my outlook in the present day is in keeping with our expectations at first of the 12 months.

I anticipate regular development for Halliburton all through the rest of 2024. In our worldwide markets, we see robust demand for Halliburton companies, excessive exercise ranges, and tools tightness throughout all main basins. We anticipate our worldwide enterprise to ship about 10% income development for the complete 12 months. I’m happy with the worthwhile development we’re seeing throughout our product traces.

And in the present day, I wish to spotlight three particular ones in additional element. The primary is our Landmark Software program enterprise. I just lately attended our Landmark Discussion board, LIFE2024, in Athens, Greece. It’s an annual occasion the place we share our newest software program improvements and our clients share their successes and future alternatives.

Whereas in Athens, I had the chance to satisfy with dozens of consumers and so they instructed me how excited they have been about our newest choices like unified ensemble modeling, scalable earth mannequin, and our newest developments in AI and machine studying. These instruments change the best way clients work by driving efficiencies from asset degree planning by way of manufacturing. The convention included buyer shows that showcased their enterprise transformation and their use of Halliburton Landmark’s instruments. Our clients inform us we create distinctive worth with our iEnergy cloud platform, which seamlessly integrates into their workflows.

I’m assured that Landmark’s DecisionSpace 365 will increase and add to our clients’ productiveness and innovation journey. Subsequent, Halliburton’s synthetic elevate product line is rising within the worldwide markets at double the speed of our total worldwide enterprise. It embodies our profitable M&A method of bolt-on acquisitions that carry main expertise into our portfolio. We organically develop new applied sciences by way of our world footprint and thru collaboration with our clients to engineer options that maximize their property worth.

As one instance, this quarter we launched our GeoESP line, which is engineered for the cruel geothermal surroundings. The GeoESP line solves for excessive thermal biking, scale growth, abrasion, and corrosion. Whereas geothermal ESP expertise has purposes throughout the globe, Halliburton sees substantial development alternatives in Europe the place clients require superior expertise to carry geothermal to scale. Lastly, Halliburton’s drilling companies are key to our success within the worldwide markets.

We had one other robust quarter in unconventional drilling with our iCruise X rotary steerable system and our LOGIX autonomous drilling platform. We deployed developments that improved drilling pace and reliability and set a number of interval information through the quarter. We put money into differentiated drilling expertise and we anticipate our robust efficiency and dependable execution to drive above-market development. For instance, within the Center East, our drilling companies income grew about 30% 12 months over 12 months.

I’m happy with our worldwide enterprise and look ahead to deepening our technique and delivering extra worthwhile development. Turning to North America, our second quarter income declined 3% in comparison with the primary quarter. Halliburton’s first half 2024 outcomes have been largely as we anticipated. Nevertheless, as we have now seen, rig counts and total service exercise declined by way of the quarter.

As I look to the second half of 2024, I now anticipate full 12 months North America revenues to say no 6% to eight% versus final 12 months, pushed by decrease exercise. I anticipate that the second half of 2024 will likely be close to the low level of exercise ranges this cycle, and whereas it is too early to present particular steering for 2025 in North America, I anticipate exercise to be directionally greater than the second half of 2024. Here is how I take into consideration this. First, I anticipate a rise in exercise after E&P corporations full their acquisitions and set up new growth plans.

Second, among the merged property will likely be divested to smaller operators who will put them to work. Lastly, I anticipate some restoration in pure fuel exercise. Six years in the past, after we set our technique to maximise worth in North America, I understood it could take a market like we see in the present day the place North America exercise declined by over 200 rigs within the final 18 months to display the margin resilience and earnings energy of our technique. I’m happy that Halliburton delivered robust C&P margins by way of this era and I’m assured that our technique will ship robust outcomes sooner or later.

We’re dedicated to our technique to maximise worth in North America as a result of it delivers shareholder worth and it’s the proper technique for this market. For Halliburton, we targeted on returns. We allocate capital to the markets and merchandise that drive superior returns and margins. We prioritize returns over market share, and to that finish, we retired a number of fleets this quarter.

We developed differentiated applied sciences to unravel for the distinctive necessities of the North America market. And lastly, we enhance efficiencies for our clients by way of these applied sciences, service high quality, and execution. I anticipate this technique will ship main efficiency for our clients and a structurally extra resilient North America enterprise for Halliburton. A key a part of how we do that is our strategic funding in expertise.

One expertise I am enthusiastic about is the most recent addition to Octiv, a key part of the ZEUS platform. As we speak, Octiv is a cornerstone of how we ship massive multi-well pads with unmatched precision and consistency. As our clients execute completions with ever-increasing dimension and depth, automation, as delivered by Octiv, supplies higher management and more practical supply for simul-frac and trimulfrac operations. Through the second quarter, we accomplished area trials of the most recent degree of Octiv automation referred to as AutoFrac.

With the one click on of a button, AutoFrac executes your complete frac job from ramp up at first to ramp down on the finish, making autonomous fracturing a actuality. This new degree of automation provides clients management to execute the frac design precisely how they need it with out human intervention. Following our business trials, AutoFrac is able to scale and I am enthusiastic about what this expertise means for our clients and for Halliburton. Lastly, we see speedy adoption in North America of our iCruise rotary steerable system.

We persistently scale back drilling instances for our clients and create vital worth. Within the Permian Basin, the variety of rigs operating the system has elevated by nearly 45% because the begin of this 12 months. We’re on tempo to triple our footage drilled in North America this 12 months and I am excited in regards to the market adoption of iCruise. North America is the biggest oilfield companies market on this planet.

We’re crystal clear on how we maximize worth in North America. We now have demonstrated that this technique works. And that is why I’m assured that we’ll proceed to ship robust returns by way of this cycle. To step again, Halliburton’s returns and money flows are robust and I’m happy with our efficiency this quarter.

I am simply again from a number of weeks in Europe/Africa. What I noticed is a microcosm of Halliburton around the globe. The standard of our individuals, the readability of our technique, our main applied sciences, the depth of our pipeline of alternatives, and the competitiveness of our enterprise segments all give me unimaginable confidence in Halliburton’s future. Now, I will flip the decision over to Eric to supply a number of extra particulars on our monetary outcomes.

Eric?

Eric Carre — Government Vice President, Chief Monetary Officer

Thanks, Jeff, and good morning. Our Q2 reported internet revenue per diluted share was $0.80. Whole firm income for the second quarter of 2024 was $5.8 billion, flat sequentially. Working revenue was $1 billion, a sequential improve of 5%, and working margin was 18%, a sequential improve of 69 foundation factors.

Starting with our Completion and Manufacturing division, income in Q2 was $3.4 billion, sequentially flat. Working revenue was $723 million, up 5% when in comparison with Q1 2024, and working revenue margin was 21%. These outcomes have been primarily pushed by robust worldwide completion and manufacturing efficiency, offsetting softer ends in North America. In our Drilling and Analysis division, income in Q2 was $2.4 billion, whereas working revenue was $403 million, each sequentially flat from Q1 2024.

Working margin was 17%, a sequential improve of 20 foundation factors. These outcomes replicate the power of our world D&E enterprise regardless of the roll-off of seasonal software program gross sales in Q2 which affected each area. Now, let’s transfer on to geographic outcomes. Our Q2 worldwide income elevated 3% sequentially.

Europe/Africa income within the second quarter of 2024 was $757 million, a rise of 4% sequentially. This improve was primarily pushed by greater nicely building exercise and improved wireline exercise in Norway, together with elevated completion software gross sales and better stimulation exercise in West Africa. Center East Asia income within the second quarter of 2024 was $1.5 billion, a rise of 5% sequentially. This improve was primarily associated to greater exercise within the Center East throughout a number of product traces and better fluid companies in Asia.

Latin America income within the second quarter of 2024 was $1.1 billion, sequentially flat. In North America, income was $2.5 billion, representing a 3% lower sequentially. This decline was primarily pushed by decreased strain pumping companies in US land and decreased completion software gross sales and testing companies within the Gulf of Mexico. Transferring on to different gadgets.

In Q2, our company and different expense was $65 million. For the third quarter of 2024, we anticipate our company bills to extend barely. Our SAP deployment stays on price range and is on schedule to conclude in 2025. In Q2, we spend $29 million, or about $0.03 per diluted share, on SAP S4 migration, which is included in our outcomes.

For the third quarter, we anticipate SAP bills to extend barely. Web curiosity expense for the quarter was $92 million. For the third quarter 2024, we anticipate internet curiosity expense to be roughly flat. Different, internet expense for Q2 was $20 million, which was decrease than anticipated, pushed by favorable FX actions.

For the third quarter of 2024, we anticipate this expense to be roughly $35 million. Our efficient tax price for Q2 was 22.5%, decrease than anticipated resulting from discrete gadgets. Primarily based on our anticipated geographic earnings combine, we anticipate our third quarter of 2024 efficient tax price to extend roughly 1%. Capital expenditures for Q2 have been $347 million.

For the complete 12 months of 2024, we anticipate capital expenditures to be roughly 6% of income. Our Q2 money stream from operations was $1.1 billion and free money stream was $793 million. Through the quarter, we repurchased $250 million of our frequent inventory. For the complete 12 months 2024, we anticipate free money stream to be not less than 10% greater than in 2023.

Now, let me offer you some feedback on our expectations for the third quarter. In our Completion and Manufacturing division, we anticipate sequential income to be down 1% to three% and margins to lower by 75 foundation factors to 125 foundation factors. In our Drilling and Analysis division, we anticipate sequential income to extend 2% to 4% and margins to extend by 25 foundation factors to 75 foundation factors. I’ll now flip the decision again to Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks, Eric. Listed below are a number of key factors I would love you to remove from our dialogue in the present day. I’m happy with our 18% margins and about $800 million of free money stream within the second quarter. We’re nicely on monitor to ship over 10% free money stream development this 12 months.

I am enthusiastic about our worldwide enterprise the place our expertise portfolio has by no means been stronger. I’m assured that our technique to maximise worth in North America is working, and I anticipate it continues to ship robust returns. Lastly, I’m satisfied that our collaborative method and worth proposition differentiate us from our opponents and are straight aligned with how our clients anticipate to drive improved efficiency. And now, let’s open it up for questions.

Questions & Solutions:

Operator

[Operator instructions] Our first query will come from the road of Dave Anderson with Barclays.

David Anderson — Analyst

Hello. Good morning, Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Good morning, Dave.

David Anderson — Analyst

So, North America is softening just a little bit, not a shock. Quite a lot of your fleet, although, is beneath contract with e-fleet. I feel it is round 40% or so. And also you’re persevering with to roll out tools.

So I am simply questioning in regards to the recontracting of these. I feel you usually have like two-to-three-year contracts. I might assume, like, possibly a 3rd of that will get repriced annually or one thing like that. So what does that seem like proper now when it comes to contracting? I feel — I am assuming demand nonetheless outstrips provide right here.

So, is pricing capable of nonetheless transfer greater in there? Are you doing to mix in, lengthen offers with some clients who need extra? Just a bit shade across the repricing of that, on the e-fleets.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Yeah, nicely let’s — nonetheless see numerous demand, Dave, for e-fleets. I imply, clearly it is a main expertise and we rolled a pair out this quarter and signed some extra contracts. And so, that is a runway by way of the tip of this 12 months and into ’25 that we see in the present day. We have no contracts that expires early until subsequent 12 months.

And so, that is a course of that we’re working by way of. I am not going to undergo all that on this name, however we’re signing up with repeat clients, which is a reasonably good indicator of the worth that they are creating. So, really feel assured about that course of, however actually do not need to undergo it on the decision.

David Anderson — Analyst

Completely perceive. However would you anticipate that almost all of these fleets stick with present clients?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Yeah, I really feel — sure. Sure, nonetheless assured. I imply, these are the identical clients in some instances which are signing up the second and even past their fleets. And so, no cause to imagine that they might not.

And we’re clearly on the trail to the 40% in 2024 and 2025 as nicely. I imply, I feel that is simply that trajectory will get clearer every single day.

David Anderson — Analyst

Yeah, that makes numerous sense. And if I shift over to your worldwide story right here, and throughout the 10% income development, you highlighted Center East up 5% this quarter sequentially. Are you able to simply discuss that a part of the worldwide story for you and sort of the way you see that development? Ought to development begin to speed up right here? There’s large unconventional play over there that I do know you are concerned in. I do not know for those who can discuss another contracting alternatives with that, however I might — am I flawed to assume that that development ought to begin to speed up within the Center East, even, I imply, throughout the 10%, I do know, however actually into subsequent 12 months as nicely?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

No, you are not flawed. Look, I am very assured round our enterprise within the Center East and as you say, I am not going to speak about contracts, however Aramco clearly is a unbelievable operator and we have numerous publicity to each the unconventional and the fuel work in Saudi Arabia. We have — our typical companies, numerous publicity and even some inventive type of new issues. So, I am very optimistic, really bullish round Center East.

David Anderson — Analyst

All proper. That is good to listen to. Thanks, Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Operator

Our subsequent query will come from the road of Arun Jayaram with J.P. Morgan.

Arun Jayaram — Analyst

Good morning. Jeff, my first query is on North America. You now anticipate revenues down 6% to eight% 12 months over 12 months. How would you characterize the declines when it comes to influence from decrease exercise ranges versus, name it, pricing impacts?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Look, it is — primarily that is exercise primarily based. The truth that we — after which we retired a number of fleets through the quarter as nicely, however that is exercise and that is, as we take a look at exercise for the 12 months, fuel market really took a leg down. I did not assume it will come up, however I did not actually anticipate it to take a leg down both, so it is not flat. And I feel M&A takes a while to digest, and in order that has an influence on exercise broadly and clearly efficiencies.

I imply, we have terrific expertise. We discuss efficiencies on a regular basis, however we additionally catch as much as rigs. Glad we’re at the vanguard of that expertise and that efficiency makes Halliburton extra worth, however it actually does not change the exercise outlook.

Arun Jayaram — Analyst

Understood, understood. Jeff, you have clearly been on the street fairly a bit internationally. You anticipate 10% year-over-year development this 12 months. I used to be questioning for those who might give us any qualitative and even quantitative ideas on the way you assume worldwide spending developments in 2025 for trade and the way is development prospects internationally subsequent 12 months?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Look, they appear robust for subsequent 12 months internationally. I imply, we see numerous initiatives which are both simply now being hindered or exercise going into subsequent 12 months and in some instances, it takes some time to get the worldwide up and going. And so, in all probability the exercise that picks up the soonest will likely be the place it is type of NOC pushed, which might look in some instances like clearly the Center East. Others the place IOCs are engaged, it takes numerous negotiation, contract extensions for them.

And so, I am seeing significant work. I simply talked about my journey to Europe, Africa, and I see significant step-up there. Nonetheless enthusiastic about Latin America and what’s attainable there. And so, no, I really feel actually assured each in Halliburton’s outlook for ’25 and the industries.

Arun Jayaram — Analyst

Nice. Thanks lots.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Operator

Our subsequent query comes from the road of Neil Mehta with Goldman Sachs.

Neil Mehta — Analyst

Good morning, crew, Jeff. I assume the primary query simply constructing on North America, what do you assume goes to be the driving force that kinds the underside in exercise? I feel you alluded to a few of these factors round M&A and pure fuel, however possibly you may unpack that extra. And are you seeing any inexperienced shoots in buyer conversations that may recommend that $2.8 trillion is the underside?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Yeah, look, I feel that clients, in numerous instances, are working by way of plans for 2025 now. And, let me possibly simply step again and offer you sort of the place I see capability and trade construction, as a result of I feel that is actually vital from a companies standpoint. We have — new tools will not be being constructed. The previous tools is attriting.

And I feel that, I talked about retiring fleets this quarter. I imply, that is type of shrinking of capability availability and it is occurring just about in actual time, I feel, throughout the board. And clearly as we take a look at subsequent 12 months, I say all that to say, I do anticipate a rise in exercise round corporations that get type of new plans in place. I anticipate property find yourself within the palms of recent groups, which is — I by no means wager in opposition to North America entrepreneurs.

That may occur. I do anticipate some decide up in fuel subsequent 12 months, not less than not a leg down from right here. So, clearly, I might anticipate a leg up. And I do not assume it takes numerous exercise to agency issues up, I feel, is the purpose I am making right here.

Neil Mehta — Analyst

Thanks, Jeff. After which, simply to comply with up, it was an excellent quarter at no cost money stream and the corporate has been very constant round $250 million of return of capital. So there’s in all probability two components to that query. One is, how ought to we take into consideration working capital within the stability of the 12 months and the way ought to we take into consideration your dedication to returning capital to shareholders?

Eric Carre — Government Vice President, Chief Monetary Officer

Yeah, Neil, it is Eric. In order we stated when it comes to the working capital, I imply, the working capital will evolve in a approach that’s in keeping with our total steering of free money stream being up over 10% in comparison with final 12 months. We had extra of a working capital headwinds in 2023, in order that’s a major delta between the 2 years. And as a corporation, we proceed to deal with the general effectivity of working capital as a complete.

When it comes to money return, we purchased again $250 million in Q1, $250 million in Q2, and I feel usually talking, it is a good sort of guiding level when it comes to what we intend at this stage to do for the remaining of 2024.

Neil Mehta — Analyst

Thanks, guys.

Operator

Our subsequent query comes from the road of James West with Evercore ISI.

James West — Analyst

Hey. Good morning, Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Good morning, James.

James West — Analyst

So, Jeff, as you consider — and I do not need to beat a useless horse an excessive amount of, but when you consider North America going into subsequent 12 months, I am more and more bullish on the outlook for ’25 and definitely for ’26, each with oil costs the place they’re and fuel costs which ought to rebound properly. And we have now this big energy demand pull coming from the tech trade. And I feel the tech trade is extra totally aligned with the oil and fuel trade than it is in all probability ever been. So I am interested in your buyer conversations, how they’re interested by, how will we get this fuel to market, how will we dimension up crews or dimension up tools and prepare for what is going on to be a surge in demand and sort of pair that with setting up extra pure gas-fired energy era and issues of that nature to satisfy knowledge facilities and AI demand? How are your conversations sort of evolving there?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Look, there’s numerous dialogue round what to do with fuel. I feel your level round knowledge facilities and alignment, it simply — in my opinion, that will likely be takeaway for fuel in some unspecified time in the future. Appears simpler to put knowledge traces and fuel pipelines. And the — fuel is such a unbelievable gas and useful resource for this nation that I feel it is directionally completely right.

When it comes to timing, I feel that may come on. I feel it is early to nonetheless work by way of the mechanics of what meaning to vegetation however I anticipate all that is coming collectively within the diploma to which fuel will get taken away that solely creates extra runway for oil within the Permian Basin. So I am like — I am — share your pleasure round what knowledge facilities and AI imply for our trade when it comes to pure fuel takeaway and we have a reasonably good seat at that and get to observe it actually carefully and excited.

James West — Analyst

Received it. OK. That makes numerous sense. After which, iCruise, you talked about adoption.

Now, I imply, we had nice adoption internationally, however it sounds such as you’re getting higher adoption within the US as nicely. Might you possibly spotlight, sort of, what you are seeing with the iCruise and expertise and the way that is unfolding?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Yeah, thanks. Look, man, I am actually happy with the expertise in North America and I actually like the best way we will market with it since you have been going to market with full companies, our personal companies, we’re additionally promoting direct gross sales and a few leases and that tells me three issues in regards to the expertise. It tells me, A, it is in excessive demand. B, it tells me that it’s totally dependable as a result of we might promote it that approach and C, it is delivering efficiency And I am actually happy with the purchasers which are adopting it as a result of in my opinion, this type of adoption is admittedly, these are the gold normal of, in my opinion, drillers that, good drilling organizations that decide this software up and say, wow, we actually prefer it.

We wish extra of it. And so, like I stated, I feel we have a extremely good runway round drilling in North America and it is all rooted in type of investments we have revamped fairly a number of years, however I imagine we’re there in the present day.

James West — Analyst

Received it. North America is a pleasant money stream machine for you guys. All proper. Thanks, Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Operator

Our subsequent query will come from the road of Luke Lemoine with Piper Sandler.

Luke Lemoine — Piper Sandler — Analyst

Hey. Good morning.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Good morning, Luke.

Luke Lemoine — Piper Sandler — Analyst

If you happen to sort of revised the worldwide outlook just a little bit for this 12 months, might you stroll us by way of among the places and takes which have unfolded, or is a few of this only a push into ’25 on the spend?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Effectively, look, we’re type of midway by way of the 12 months and we have actually good visibility into the stability of the 12 months. And so, I did not assume we might hit the excessive finish of the vary. So needed to tighten that up for you guys as we glance out. This autumn would be the highest worldwide quarter we have now, usually with software program gross sales and gear gross sales.

However day in and time out, we’re persevering with to develop, and we’re very targeted on worthwhile development. And as I feel I alluded to earlier, my expectation is that we see a unbroken march internationally of development. And oil worth says that, our purchasers are saying that, my very own mission stock is saying that. So for those who describe it as a push, that is a technique to consider it.

However simply from the place we sit in the present day, I do know what we are able to get completed and I believed it will be worthwhile to slender {that a} bit.

Luke Lemoine — Piper Sandler — Analyst

OK. After which, you touched on it just a little bit earlier, however might you stroll by way of among the numerous unconventional worldwide alternatives you are seeing develop over the following two or three years?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Definitely. Look, Saudi Arabia and Argentina in the present day are significant markets which are — actually have heft and are executing. The — and I feel what has modified and so the remainder of the center east I am enthusiastic about and Center East is a fairly large place if you consider it when it comes to type of from the Mediterranean all the best way to again into Saudi, that is a good distance. However there’s numerous exercise being talked about.

And I feel we’re proper in the midst of these, I feel. I do know we’re in the midst of these discussions. We have numerous expertise on this. And I feel what’s totally different in the present day is the type of capacity to simply accept type of what the testing is.

The early days exercise of this, I feel there’s numerous type of we have seen begins and stops internationally, however now we have now a confirmed mannequin in two worldwide markets the place you get by way of the preliminary part after which it turns into a significant contributor to manufacturing and I feel that is being type of seen by different locations the place they’ve good reservoirs, good rock and dealing by way of, I feel, very thoughtfully and pragmatically what does it take to get from A to B. And so, from my perspective, that is a significantly better dialogue than type of a scramble or wildcat type of transfer all around the world. These are very critical operators which are taking a protracted view.

Luke Lemoine — Piper Sandler — Analyst

OK. Thanks, Jeff.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Operator

Our subsequent query comes from the road of Saurabh Pant with Financial institution of America.

Saurabh Pant — Financial institution of America Merrill Lynch — Analyst

Hello. Good morning, Jeff, and Eric.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Good morning, Saurabh. How are you?

Eric Carre — Government Vice President, Chief Monetary Officer

Hey, Saurabh.

Saurabh Pant — Financial institution of America Merrill Lynch — Analyst

Good. Thanks. Perhaps, Jeff, I will begin with a query on D&E margin. Clearly, Eric, you guided to the third quarter, however something past that, not simply fourth quarter, however ’25, how ought to we take into consideration margin growth alternative as a result of this can be a primarily worldwide pushed enterprise, proper? How ought to we take into consideration the influence from internet pricing enchancment, expertise uptake? I do know you talked about Landmark, proper? However simply assist us just a little bit with the margin growth alternative in D&E.

Eric Carre — Government Vice President, Chief Monetary Officer

Yeah, I feel the best way to take a look at D&E margins is admittedly the development on year-on-year foundation. There tends to be fairly a little bit of distinction between totally different quarters as we acknowledge income round software program impacts principally Q1, This autumn, and so forth. So it is actually the year-on-year development by quarter that it is advisable take note of from that perspective. We proceed to enhance the margins in D&E.

We firmly imagine that it continues as we get into subsequent 12 months. Jeff talked in regards to the development of the directional drilling enterprise in North America. We proceed to see development and adoption of the brand new drilling applied sciences within the worldwide markets as nicely. So directionally, we proceed to be very assured within the development of our D&E margins as we go into 2025.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Perhaps just a little extra shade on that, as a result of after I take into consideration our drilling enterprise, we rolled out iCruise, which is the drilling software, the BHA, after which, that penetration has grown to — we’re drilling much more ft with our iCruise than we’re our legacy instruments. Most likely, 60%, 70% p.c of our fleet is that in the present day. However what follows on that’s an equal type of step-up in effectivity, efficiency and really margin for us round our iStar expertise, which is principally the LWD expertise that goes with it. And that adoption or really implementation is way much less, I need to say, within the 20% vary.

So we have an excellent glide path of issues that structurally enhance margins for essentially the most half D&E. And so, I see that as a part of my confidence round, look, we simply have to proceed to retire the previous as it is time and exchange it with the brand new. And that’s structurally bettering our capital effectivity.

Saurabh Pant — Financial institution of America Merrill Lynch — Analyst

OK. Implausible. Now, that is useful. And only one on the manufacturing facet of issues.

I do know you talked about synthetic lifting in your ready remarks. Good to see worldwide rising at a a lot quicker tempo than the general worldwide marketplace for elevate. But when we deal with the manufacturing chemical substances facet of issues, I do know you acquired Athlon, you have been investing money and time to increase that enterprise, proper? Perhaps simply replace us on that, Jeff, the place does the manufacturing chemical substances match and what is the alternative simply on that facet for Halliburton?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Effectively, in keeping with that enterprise, it is clearly a part of our portfolio, however it’s additionally an inherently type of decrease returning enterprise than the stability of our enterprise. So we run it like all of our enterprise with a deal with profitability and returns. I am happy on the tempo we’re filling our plant in Saudi Arabia. And that enterprise has a protracted gross sales cycle.

However we all know lots about chemical substances and proceed to execute that.

Saurabh Pant — Financial institution of America Merrill Lynch — Analyst

OK. Implausible. OK, Jeff, Eric, thanks. I will flip it again.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Eric Carre — Government Vice President, Chief Monetary Officer

Thanks.

Operator

Our subsequent query comes from Scott Gruber with Citi.

Scott Gruber — Analyst

Good morning.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Good morning.

Eric Carre — Government Vice President, Chief Monetary Officer

Good morning.

Scott Gruber — Analyst

Good morning. I am curious, diesel costs have come off just a little bit and there is hopes for a pure fuel worth restoration subsequent 12 months. So, Jeff, I am curious, what fuel worth would shut the price of gas delta between e-frac when utilizing CNG and conventional diesel? I do not assume it is $4 or $5 fuel. I need to test that with you and simply total how would you describe e-frac economics even in an surroundings of more healthy fuel?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

It is a couple issues. It is lots greater than that to begin with. I imply, if we simply use type of Btu six instances, six instances 4, at $4, you are still a good distance from diesel costs. The opposite factor is the effectivity of the mousetrap.

I imply, it is simply — our e-fleets are creating worth nicely past the financial trade-off with fuel. That is to not say there is not numerous runway round financial trade-off with fuel, however that platform in and of itself is only a higher working machine and it supplies expertise for purchasers that basically they cannot get — that is not accessible in one other type. And whether or not that is AutoFrac, Octiv, what we’re doing with sensory when it comes to understanding restoration, numerous this. And so, we’re capable of assist resolve for delivering what was deliberate with precision and in measuring efficiency of what was positioned within the reservoir.

That is a complete totally different kettle of fish, however it’s all hooked up to the ZEUS platform. And so, all of that runs collectively. So after I take into consideration e-fleets broadly, sure, there’s the fuel arbitrage which is occurring on a regular basis and like I stated, lengthy technique to go on fuel arbitrage earlier than that ever comes up. However I feel extra importantly is what we’re capable of obtain with that expertise for our clients.

Scott Gruber — Analyst

Makes numerous sense. And in the end it feels like Octiv and AutoFrac are going to assist sort of additional that final penetration for e-frac together with your clients and sort of lengthen any sort of saturation level that in the end may very well be hit. Simply as you assume a number of years out, as you develop these softwares, develop a platform for a extra environment friendly operation, the place do you assume e-frac goes as a p.c of Halliburton’s fleet? And sort of when do you get there?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Effectively, look, I feel we talked about this. We’ll eclipse 40% this 12 months. I anticipate we’re at 50% subsequent 12 months. And we proceed to take a position each within the — we’re at scale in the present day.

And that enables us then to each enhance or proceed to increase the expertise across the pump itself and the facility techniques, after which additionally the software program that we’re speaking about that basically addresses in my opinion what operators are targeted on which is restoration and placement and a complete lot of issues that have an effect on productiveness over time. And so, we’re extending that moat round that expertise every single day. And so, I am assured that as we proceed into the long run, we have fairly a glide path of concepts and issues that may make that, but once more, much more efficient for patrons over time. So, happy with the place we’re there.

Scott Gruber — Analyst

I respect the colour, Jeff. Thanks.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Operator

Our subsequent query comes from Doug Becker with Capital One.

Dougla Becker — Capital One Securities — Analyst

Hey?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Doug?

Dougla Becker — Capital One Securities — Analyst

Sure. Are you able to hear me?

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

I can. Good morning.

Dougla Becker — Capital One Securities — Analyst

So, Halliburton’s North America income is usually outperforming the North America rig depend. Simply questioning for those who might simply spotlight among the key drivers of that outperformance that you just anticipate going ahead and actually asking to try to calibrate how Halliburton’s North American income may outperform the rig depend subsequent 12 months.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

I feel numerous it, it is — e-fleets are contracted. That is a big a part of our enterprise. The efficiency is main when it comes to effectivity and expertise and we proceed to put money into expertise that differentiates Halliburton. And that is one of many key issues.

I imply, it is in keeping with our technique. I will pivot again to our technique only for a minute however we need to — maximizing worth in North America signifies that we’re very focused about what we do, what we put money into, the place we spend cash and on these issues that we all know will create differentiation. And clearly, expertise is a kind of key areas and never expertise for the sake of expertise however focused expertise that may resolve for automation, that may resolve for subsurface understanding and measurements, direct measurements. And so, that focus permits us to outperform on the income facet of that and the maximize worth once more.

That technique hasn’t modified in any respect and offers me numerous confidence into ’25 and past when it comes to the place Halliburton is available in the market.

Dougla Becker — Capital One Securities — Analyst

I imply, is it too aggressive to consider in a flat North America rig depend surroundings? Halliburton’s income continues to be rising 5% subsequent 12 months in that sort of surroundings.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Yeah, I imply, it may very well be. We have to watch it unfold subsequent 12 months. However look, I — once more, I will return to — our efficiency available in the market goes to outperform. It is early on ’25 however I’ve obtained confidence within the expertise and the options that we offer for our clients which are distinctive and that places us within the place to outperform.

Dougla Becker — Capital One Securities — Analyst

Proper. That utterly is smart. After which, only a fast one on the e-fleets. We have been listening to extra discuss white house even on devoted or contracted fleets.

Simply needed to get just a little bit higher sense on your e-fleets. Is there any danger of white house? I totally respect that they are long-term contracts and so they justify the returns, however simply interested by any potential white house danger on these contracts.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

No, not the case. Our purchasers — that contract — once more, these are contracted with clients with lengthy applications, they are going to use these e-fleets. It will likely be all the time — if there have been white house, that is the fleet that they are going to maintain working it doesn’t matter what. It’s — while you’re delivering decrease value of possession, you’re — and delivering the expertise and the shopper is dedicated to the fleet, that is the fleet that is all the time working.

And so, no, not apprehensive about that.

Dougla Becker — Capital One Securities — Analyst

That is what I needed to listen to. Thanks.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Thanks.

Operator

Our final query in the present day will come from Marc Bianchi with TD Cowen.

Marc Bianchi — Analyst

Hey. Thanks. The primary one I had was on the exercise outlook. Jeff, you talked about that it might enhance right here from the second half of ’24, however it sounds such as you’re stopping wanting speaking about income.

And I assume possibly following on a few of Doug’s query, while you take a look at how exhausting it’s to name income, is worth — uncertainty about worth the primary factor or possibly speak in regards to the prime one, two or three issues which are unsure round income versus exercise.

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

No, I feel the uncertainty round exercise is admittedly the driving force right here. And after we take a look at the second half of the 12 months, we have had some clients that did — we caught up with them and so they’re nonetheless clients and so they plan to go to work once more subsequent 12 months and possibly even later this 12 months. So no, that is not my concern. It’s, once more, I will pivot again to our technique when it comes to maximizing worth.

We have numerous instruments that permit us to try this technically. And, I feel it is only a query of pacing of issues occurring in — whether or not it is setting plans or different issues. However, the ’25 will likely be, in my opinion, clearly greater than the second half of 2024.

Marc Bianchi — Analyst

OK. Nice. After which, the opposite one I had, possibly this one’s for Eric, however simply wanting on the third quarter information for C&P, the margin discount sequentially appears fairly steep for the income discount we’re getting. Might you discuss possibly among the shifting items there, what is likely to be driving that margin weak point?

Eric Carre — Government Vice President, Chief Monetary Officer

Sure, I imply, there’s the — the margin steering is definitely a mixture of what we talked about for North America, however actually Q3 margins within the worldwide enterprise are going to be decrease than Q2 as nicely. So there’s simply not an excessive amount of to learn into this besides there’s numerous shifting components within the enterprise. It isn’t simply North America. It is a number of product traces as nicely.

So it isn’t all associated to North America.

Marc Bianchi — Analyst

Nice. Thanks. I will flip it again.

Operator

That concludes in the present day’s query —

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

OK. Effectively, thanks. Let’s wrap up the decision right here. I do know all of you may have a really busy day forward of you, and possibly I will offer you a couple of minutes again earlier than your subsequent name.

However as we shut out in the present day’s name, it is vital to step again and keep in mind this. Halliburton delivered 18% margins and about $800 million of free money stream within the second quarter. We’re nicely on monitor to ship 10% free money stream development this 12 months. Our worldwide enterprise and its expertise portfolio have by no means been stronger.

Our technique to maximise worth in North America is working. We’re dedicated to maximizing worth, not market share, and I anticipate that technique continues to ship robust returns. Stay up for talking with you subsequent quarter.

Operator

[Operator signoff]

Period: 0 minutes

Name individuals:

David Coleman — Senior Director, Investor Relations

Jeffrey Allen Miller — Chairman, President, and Chief Government Officer

Eric Carre — Government Vice President, Chief Monetary Officer

Jeff Miller — Chairman, President, and Chief Government Officer

David Anderson — Analyst

Dave Anderson — Analyst

Arun Jayaram — Analyst

Neil Mehta — Analyst

James West — Analyst

Luke Lemoine — Piper Sandler — Analyst

Saurabh Pant — Financial institution of America Merrill Lynch — Analyst

Scott Gruber — Analyst

Dougla Becker — Capital One Securities — Analyst

Doug Becker — Capital One Securities — Analyst

Marc Bianchi — Analyst

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