哈里伯頓 (HAL) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Halliburton fourth quarter 2013 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Kelly Youngblood. Sir, you may begin.

Thank you, Sam. Good morning, and welcome to the Halliburton fourth quarter 2013 conference call. Today's call is being webcast, and a replay will be available on Halliburton's website for seven days. The press release announcing the fourth quarter results is also available on the Halliburton website. Joining me today are Dave Lesar, CEO; Jeff Miller, COO; and Mark McCollum, CFO.

I would like to remind our audience that some of today's comments may include forward-looking statements reflecting Halliburton's views about future events, and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results, and 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, 2012, Form 10-Q for the quarter ended September 30, 2013, recent Current Reports on Form 8-K, and other Securities and Exchange Commission filings. Our comments include non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our fourth quarter press release, which as I have mentioned can be found on our website.

In our discussion today, we will be excluding the financial impact of the fourth quarter charges related to employee severance and other restructuring charges during the quarter of $28 million after-tax or $0.03 per diluted share, and the third quarter charges related to employee severance and other restructuring charges during that quarter of $38 million after-tax or $0.04 per diluted share unless otherwise noted.

We will welcome questions after we complete our prepared remarks. We ask that you please limit yourself to one question and one related follow-up, to allow more time for others who have questions. Now I will turn the call over to Dave.

Thank you, Kelly, and good morning to everyone. Let me begin with a few of our key accomplishments in 2013.

First, I am very proud to say that we delivered industry-leading international revenue growth in 2013. Specifically for the full year, our Eastern Hemisphere revenue grew a remarkable 17% with profit growth of 23%. That coupled with a solid year in North America, resulted in a record year for the Company with revenue totaling $29.4 billion.

We also set new revenue records this year in all of our international regions and in both of our divisions. From an operating income perspective, we achieved new full-year records in our Middle East/Asia region, and in 6 of our 13 product lines. I want to express my gratitude to our 77,000 employees around the globe for their hard work and dedication that helped us deliver these outstanding results.

In 2013, we also demonstrated our strong commitment to delivering superior shareholder returns. We repurchased approximately $4.4 billion or 10% of our outstanding shares. We also increased our dividend twice during the year for a total payout increase of 67% over our 2012 dividend rate.

These actions reflect our continued confidence in the strength of our business outlook. We have been, and will continue to be relentlessly focused on delivering consistent execution and best-in-class returns.

Our strategy has worked well for us, and we intend to stay the course. The cornerstones of our strategy remain unchanged, expanding our share within the deepwater market, helping our customers maximize recovery from mature fields, and leading in global unconventional development. We believe that these are sustainable growth segments for Halliburton, which will allow us to generate superior revenue growth, margins and returns.

So I think we had a really good year, given what the market gave us. Now before we delve deeper into the fourth quarter, I think I should cut right to the chase, and look at how we believe 2014 will play out. I think that will help provide you with some context for the rest of today's discussion.

So let's start with our 2014 view for all of Halliburton Company. Let me begin by saying that we are very optimistic about the coming year, and our ability to achieve robust revenue and operating income growth for the total Company.

As we look at the 2014 landscape today, we see the following. Based on customer surveys and some discussions with customers, we see total customer drilling and completion spending increasing by the mid- to upper single-digit percentages, with higher spending percentages increases in the Eastern Hemisphere and a bit lower in North America.

However, from a Halliburton revenue standpoint, we believe we will outpace the market rate of spending increases in both the Eastern Hemisphere and North America, and revenue growth for the full year could approach double-digits. We also believe overall margins will take a step higher both in Eastern Hemisphere and North America. These expectations provide the framework for our current 2014 operating plan which reflects continued superior returns, significant higher cash generations, and solid double-digit growth in earnings per share.

Now let me do a little bit deeper dive into our outlook on the major market segments. In the Eastern Hemisphere for 2014, we anticipate customer spend to be largely driven by our NOC customers.

With the contracts we have in hand, we are planning on low double-digit revenue growth for the hemisphere, led by Saudi Arabia, Iraq, China and Australia in our Middle East and Asia businesses, and by Russia and Angola in our Europe/Africa/CIS region. We also anticipate 2014 Eastern Hemisphere margins should take a step higher quarter over quarter when compared to 2013, approaching 20% by year-end and averaging in the upper teens for the year.

In 2013 North America played out as we predicted. We saw a market driven by increased drilling and completion efficiencies with a relatively flat overall rig count and industry over-capacity.

The volatility of the past few years has evolved into a more stable market environment. In the fourth quarter of 2012 if you recall, we called the bottom on our North America margins, and we were right, and we have seen a marked improvement in margins since that time.

For 2014, we are now forecasting US spending to increase in the mid single-digit range, based on recent moderations in liquids pricing outlook. Of course, we naturally believe our growth rates will exceed that increase in customer spend, given our strong position in North America. On the margin front for North America, we believe that over the course of the year, we will see our margins increase about 200 basis points.

We expect the US land rig count to modestly increase in 2014, driven primarily by the continued shift to horizontals in the Permian Basin. The Permian started 2013 with less than 35% of the rig count running horizontal, but we anticipate more than half the rig count will be horizontal by the end of 2014. We also expect to see a continued trend in higher well efficiencies due to increased pad drilling, more 24 hour operations, rig fleet upgrades, and significant advancements in drilling and completion technologies.

In 2013, we saw average drilling days per horizontal well drop by approximately 14% compared to 2012, and we anticipate horizontal drilling and drilling efficiencies to again improve in the mid- to upper single-digits in 2014. Storage levels are back near the five-year average, but production levels remain elevated, both with associated gas in the liquids plays as well as from continued robust activity in the Marcellus basin. Continued strength in natural gas prices could provide some upside potential, but we are not optimistic there will be a meaningful uptick in gas activities in the near-term.

With regards to Latin America, we expect 2014 to be a challenging year with fairly steady activity in all countries except Mexico and Brazil, both of which are in transition. As previously communicated, Brazil deepwater drilling activity levels have been below expectations, and are expected to be even worse throughout 2014. Petrobras has recently said the deepwater rig count for 2014 will be even less than the already depressed levels of 2013.

The entire services industry in Brazil is looking for relief to the overcapitalization that has occurred there, in anticipation of a much higher deepwater rig count. No relief has been forthcoming at this point.

We have an excellent long-term contract position in Brazil, and I still believe it will pay off in the long run. But for now the depreciation and personnel costs of our high capital investment is having a severe downward pressure on Brazil margins. However, we intend to stay the course and work with Petrobras to try to gain some relief over the next several quarters.

In Mexico, reduced activity levels on land are expected to continue through the first half of 2014, as we transition from our prior South Alliance 2 projects to already identified new opportunities in the country. Last quarter we announced the win of the largest incentivized project contract called Humapa, and I am pleased to say today that based on the preliminary tender results we are also positioned to win Mesozoic 1, the largest of the integrated mega tender projects. These large contract wins will result in higher revenues in Mexico, but the mobilization for them will take some time.

In the meantime, I have made the decision to not to reduce our headcount or support costs, as these resources will soon be needed on these projects hopefully by the third quarter. Therefore this ongoing cost will go directly against our profitability until the revenue stream starts back up.

In addition, last year PEMEX pushed the annual software and consulting blanket order approval process back further into the year, delaying their release until the third and fourth quarters. While it is difficult to predict whether this typical approval process is the new norm, we do know that we will be expanding our consulting work with PEMEX in 2014 and beyond. This could result in us incurring costs that will directly hit our profits until the blanket order is signed and revenue can be recognized.

Both of these items are transitory in nature, but will clearly weigh on our profitability in Mexico for probably the first six months of 2014. And while this is not an optimal outcome, I do strongly believe this approach is in the best interest of our Company for the long-term success of our business in Mexico, a market we believe has long-term sustainable value to us.

So we are strongly committed to both Mexico and Brazil through this transition period. We believe these issues are short-term bumps in the road, but because of them margins for the Latin America region will likely be in the upper single-digits until activity begins to recover in the back half of the year. Over the long-term though, Latin America is expected to be an outstanding growth market for us, and Jeff will give you some details on that in a bit.

So overall, our strategy is working well. We intend to stay the course in the coming year. I am optimistic about our ability to grow North American revenue and margins, realize industry-leading revenue and margin growth in our international business, which should result in double-digit EPS growth. We also remain focused on consistent execution, superior financial performance and industry-leading returns.

Now let me turn the call over to Jeff, and he will give you some operational details.

Thanks, Dave, and good morning, everyone. Let me begin with an overview of our fourth quarter results. Overall, I am pleased with our operational results. Total Company revenue of $7.6 billion was a record quarter for Halliburton with operating income of $1.2 billion.

We achieved record revenues this quarter in our completion tools, multi-chem, landmark, wireline and perforating, and testing product lines. During the quarter, our landmark and testing product lines also set new operating income records.

Turning to the geographies, our Eastern Hemisphere had record revenue for the quarter with 14% year over year growth, while operating income grew 10% for the same period. Sequentially, Eastern Hemisphere revenue and operating income improved 8% and 14%, respectively, driven by our Middle East Asia region. Relative to the third quarter, Europe/Africa/CIS grew by 4% with slightly higher operating income despite some modest weather issues in the North Sea.

The UK led the improvement with increased drilling and offshore wireline activity. Also contributing to the growth was increased stimulation and Boots & Coots activity in Algeria, and seasonally higher year-end software sales in Russia and throughout Continental Europe. Partially offsetting the growth was lower drilling and wireline activity in Egypt.

In Angola, we performed our first presalt deepwater open hole logging jobs in the country on two wells for Cobalt International. Our open hole wireline logging suite of tools, including nuclear magnetic resonance, imaging, coring, seismic and reservoir formation pressure testing and sampling services delivered high quality petrophysical, geophysical, and reservoir information for our customer.

We also used our ICE Core fluid and analysis technology, which debuted in the fourth quarter. We continue to build customer confidence in our technology and formation evaluation capability through jobs like this, and our recent successes logging deepwater discovery wells elsewhere in Africa.

In the Middle East/Asia region compared to the prior quarter, revenue and operating income grew by 12% and 28%, respectively. Seasonal year-end software and equipment sales led the improvement for the quarter, followed by higher stimulation activity in Australia, and increased drilling activity in Malaysia and Thailand.

In Indonesia, we received two major project wins in the quarter. The first is a three-year project management win valued at over $200 million to oversee the drilling, logging, and testing of challenging high-pressure high-temperature geothermal wells. This is a testament -- testimony to Halliburton's unique leadership in delivering high-pressure high-temperature solutions.

The second win is a series of contracts to provide directional drilling, wireline, and completion services in a multi-field deepwater project over five years. This is expected to be the largest development to date in Indonesia.

Also during the quarter, Halliburton successfully completed the first -- the industry's first fully-acoustic telemetry-controlled and monitored deepwater drillstem test. Using our DynaLink wireless telemetry system, we sent acoustic control signals downhole, operating the well test valves and fluid sampling system, while also receiving realtime reservoir data at surface. The enhanced flexibility and control during this operation saved our customer five rig days.

This advancement, along with deepwater contract wins in Indonesia and Angola, reflect our leading global completions position, and our evolution towards becoming a compelling choice for deepwater drilling and evaluation services. As we deploy new technologies into the Eastern Hemisphere, we are seeing strategic upsell opportunities within our existing contracts, and have been able to increase pricing accordingly with new contracts.

Turning to Latin America, revenue and operating income were essentially flat compared to the third quarter. This is the net result of higher year-end software sales, increased cementing activity, and the recognition of a value added tax refund receivable in Brazil, which offset a decline in activity related to our Mexico Southern Alliance 2 contract.

As discussed on our last earnings call, activity levels on the Southern Alliance 2 project have declined meaningfully, as PEMEX ramps down the ongoing IPM work in preparation for the mega tender projects. We averaged only three rigs for the Southern Alliance 2 project during the fourth quarter, as compared to a seven-rig average in the third quarter. Further, we expect to average two rigs on this project in the first half of 2014.

Looking at the Mexico mega tenders, the number of projects tendered dropped from 8 to 10, resulting in only 3 ATG projects in northern Mexico, plus the original 5 projects in the south. The remaining ATG projects were also smaller in scope than initially expected. Based on the preliminary results of the bid opening, we are positioned to be awarded work in the Mesozoic, the largest single contract in the mega tender round.

The ATG and Tertiary projects are the least technically challenging of the tenders, and have the highest number of submitted bids. We would not have been interested in doing these projects at the pricing we saw it took to win them. The Mesozoic work by contrast has extremely complex geology, resulting in fewer qualified bidders, and will likely result in better margins and returns.

As we said before, we are very selective on the integrated projects that we pursue. As a returns-driven organization, we are only interested in winning work that generates superior margins and returns. We believe that the Mesozoic project and the Humapa contract that will begin in the second quarter fit squarely in this economic profile. We look forward to the formal award of the mega tenders in the first quarter, mobilization to begin in the second, and in full activity levels in the back half of 2014.

And in Brazil as Dave said, we saw a significant reduction in drilling activity over the course of 2013. We believe that 2014 will be a very challenging year for Latin America. The uncertainty around the timing of when we will be able to right-size our cost structure in Brazil, coupled with the delays to the submission of the mega tenders in Mexico, have muted our growth expectations for 2014.

Ultimately, however, this does not change our long-term outlook for Latin America. The transition to the mega tenders in Mexico, in conjunction with the startup of our incentivized Humapa contract, gives us confidence that activity levels in Mexico will recover as these areas gets underway.

And in Brazil, although drilling activity could continue to decline in the near-term, our recent contract wins have a potential term of up to eight years, and we believe higher drilling activity levels will resume. Over the long-term, we expect both of these countries to continue to be strong contributors to our growth and profitability.

Switching to North America, weather-related activity disruptions resulted in a sequential drop in both revenue and operating income. However, activity levels were stronger than expected during the holiday season which helped minimize that sequential decline. We executed our highest US stage count of the year in the month of October, and activity levels remained strong throughout most of November before declining during the holidays.

Several areas including the Bakken, Permian Basin and Marcellus got off to a slow start in January due to weather disruptions, but activity levels have since resumed. We expect first quarter activity levels to be similar to the fourth quarter, as our completions calendar is looking very active over the coming months.

However, this outlook is subject to additional weather delays, notably in markets like the Rockies where we have a large market share position. In addition, we also renewed a number of long-term contracts in the fourth quarter with price concessions that will take effect during the first quarter.

Looking ahead, our customers continue to focus on horizontal drilling efficiency and multi-well pad operations. Pad wells account for over half our activity today, and even in the Permian, the last area to shift to horizontal drilling, pad activity is estimated to be over 20% in both the Midland and Delaware basins. These market conditions underscore the need for our HALvantage initiatives.

As you know, HALvantage includes Frac of the Future and Battle Red, as well as other strategic cost-oriented programs. We continue to deploy Q10s and SandCastles into the market, and expect to see our fleet cross the 20% mark in the first quarter. The Battle Red program, meanwhile, is expected to be deployed into over half of our North American operations by the end of first quarter, including the frontline smartphone technology. Once we have a couple quarters behind us, we intend to provide a more in-depth assessment of the HALvantage rollout.

At this time, I would like to give you an update on CYPHER, our seismic-to-stimulation service. CYPHER was launched publicly in the fourth quarter, and today we have over two dozen programs running for number of customers across the major basins. In November, we summarized the results of our early tests where we averaged over 20% improvement in production in North America.

Today I would like to highlight one of our pilot projects, which recently completed its first year. Our customer had a series of underperforming wells in a Barnett asset, and Halliburton was engaged to invigorate its program. The first step was to build an earth model from existing seismic log and core data, as well as production results.

This phase identified a number of sweet spots, including several that had been bypassed in the initial well placement. By understanding where to drill and where to land the wells, the second phase yielded over a 50% uplift in estimated ultimate recovery or EUR per well, and the average CYPHER well produced at a level beyond the best pre-existing wells.

Our next step was maximizing fracture complexity and production. With each iterative well, the CYPHER service was using Halliburton's proprietary complex fracture model to learn where to complete the well, and then how to complete the well. By the conclusion of the third phase, CYPHER had more than doubled the average EUR per well.

One year later, CYPHER has clearly demonstrated its value. Through this smart service, we are working with the client to continuously incorporate new technology and techniques to improve production, not only in this asset but on several others. We believe that CYPHER is a game-changer for our customers and for Halliburton. It will change the way we go to market, and will significantly differentiate us in the North American frac market.

We are also seeing a consistent adoption of our custom chemistry solutions, including our RockPerm service, and its associated OilPerm formation mobility modifiers. Through RockPerm, we demonstrate to our customers how a customized surfactant package, including OilPerm can generate appreciable production improvements compared to offset wells. Since beginning field trials in the second quarter of 2013, Halliburton has utilized RockPerm and OilPerm on over 2,000 jobs.

Moving to the Gulf of Mexico, we saw a sequential revenue and profit improvement from increased drilling activity and the return of one of our large stimulation vessels to service. Going into 2014, we believe we are well-positioned with drilling and evaluation services for the additional 14 to 16 deepwater rigs that are scheduled to arrive during the year. We are also optimistic about the higher levels of completion sales during 2014, given our strong market position in both deepwater and lower tertiary completions.

To close out North America, we believe the current environment continues to favor Halliburton. There are two key differentiators with our customers today: efficient, reliable execution and improved production. We believe these trends play to Halliburton's strengths as the leading service provider in North America, and that our HALvantage and CYPHER initiatives give us a clear competitive advantage. Based on early signals from our customers, we are optimistic about the activity outlook for 2014, and we will continue to be relentlessly focused on our cost structure to enable margin growth in the coming year.

Internationally, we are very pleased with our year over year growth, in spite of activity headwinds in Latin America. We have led our peer group in delivering international revenue growth, and expect to continue to expand our global business in 2014. We believe that continued above market rate growth will be driven by recent wins and new projects, markets where we have made strategic investments, from the introduction of new technology, and from modest pricing increases in cost recovery on select contracts.

And now, Mark will provide some additional financial commentary. Mark?

Thanks, Jeff, and good morning, everyone. As mentioned last quarter, we have been evaluating our cost structure within the organization as we deploy our HALvantage corporate initiatives.

These initiatives are having a significant impact on the support and operational headcount needs, primarily in North America as well as equipment and inventory requirements. During the fourth quarter, as we progressed with the rollout of these initiatives we took further restructuring actions, which resulted in severance and other charges during the quarter of approximately $38 million before tax.

Our corporate and other expense totaled $99 million this quarter, and included approximately $22 million for continued investment in these HALvantage strategic initiatives. These activities will continue throughout 2014, but the related costs should begin to decline in the second half of the year. We anticipate the impact of these investments will again be approximately $0.02 per share after-tax in the first quarter. Including these strategic costs, we anticipate that corporate expenses for the first quarter will be in line with the fourth quarter of 2013.

Our effective tax rate for the fourth quarter came in lower than anticipated at 26%, due to some favorable tax items in Latin America, but our tax rate does continue to fall as our international taxable earnings continue to grow. As we go forward into 2014, we are expecting the first quarter effective tax rate to be approximately 29%, which is about 100 basis points higher than our normalized rate as we exit 2013. This is driven solely by the expiration of the federal research and experimentation tax credit, which we hope will be re-approved by Congress sometime in 2014.

Cash flows from operating activities in 2013 were approximately $4.4 billion, representing growth of 22% compared to the prior year. We also generated approximately $1.3 billion in cash adjusted for stock repurchases and the new debt we issued last year. And moving into 2014, we believe we are well-positioned to generate significantly more cash, and that it will grow sustainably in the coming years.

We have previously committed to grow the percentage of cash available for distribution to shareholders up to roughly 35% of our operating cash flows over the next few years, which is nearly double our historic trend, and based on our 2013 results we are well on our way toward achieving this goal. We anticipate that our capital expenditures for 2014 will be approximately $3 billion, which is generally consistent with our 2013 spending level. We expect our international spend to continue to outweigh our North America spend in 2014. We also expect our 2014 depreciation and amortization to be approximately $2.2 billion.

During the fourth quarter, our Board of Directors approved a 20% increase in the quarterly dividend from $0.125 to $0.15 per share. This was the second dividend increase of 2013, representing a cumulative 67% increase over our quarterly dividend rate in 2012. As announced earlier in 2013, our intention going forward is for our dividend payout equal at least 15% to 20% of our net income. Additionally, we currently have approximately $1.7 billion in share repurchase authorization from our Board of Directors that is available to use for stock buybacks.

And as we move into 2014, we are anticipating a seasonal sequential decline in International revenue and margins during the first quarter, due to reduced software and equipment sales, as well as weather-related weakness in the North Sea, Eurasia, and Australia. On a year over year basis for the first quarter, we anticipate an upper single-digit percentage increase in the Eastern Hemisphere revenue, with a modest improvement in margins which is evidence of our expanding international market position.

Beginning in the second quarter, we expect Eastern Hemisphere activity levels to recover from the seasonal impact and margins to steadily improve over the course of the year, with full-year margins averaging in the upper teens. For Latin America, we expect a seasonal decline in first quarter revenue and margins to be more severe than normal, due to our elevated cost structure in Brazil, and the ramp down of the Mexico Southern Alliance 2 project as Jeff discussed a little bit ago. Also as Dave discussed, the sequential decline is also exacerbated by the timing of the annual consulting blanket order renewal in Mexico.

We are currently expecting a mid teens sequential decline in revenue in the first quarter, and margins in Latin America to be in the upper single-digits. At this time, it is difficult to provide full-year guidance for Latin America until we hear the outcome of the negotiations with our customer in Brazil, and receive formal contract awards in Mexico.

And concluding with North America, we are anticipating a typical weather impact in the first quarter, plus some additional pricing pressure for contract renewals that went into effect at the beginning of 2014. Subject to severe weather disruptions, we are currently expecting first quarter revenue and margins in North America to be in line with the fourth quarter of 2013.

Now I will turn the call back over to Dave for some closing comments.

Thanks, Mark. Just in quick summary, we executed very well in 2013. And I believe we had a good year with what the market gave us, and delivered what we said we would. Bottom line for 2014 is, we expect all of this to translate into double-digit EPS growth. So with that, let's turn it over to questions.

Thank you, sir.

(Operator Instructions)

Our first question comes from Jim Wicklund of Credit Suisse. Your line is now opened.

Good morning, gentlemen.

Good morning, Jim.

Remind me to write off Latin America as my vacation spot for this year. (laughter).

The CapEx that you guys have spent over the last couple of years, primarily in the Eastern Hemisphere, setting up locations, et cetera, that we kind of looked at as sunk costs -- are we going to see an improvement in performance on the basis of that this year? Does that kick in on a noticeable basis this year -- the ability to win costs -- win projects on more of a variable basis than a fully move-into-the-country-for-the-first-time basis?

Yes. We should start seeing that, Jim. The initial investment was to get placed. And then at this point, now that we have the facilities built out, we are -- the incremental projects that come along are being bid at sort of the rates that we would expect to recover. And then as we absorb those costs with additional work, again, we will continue to see the improvement in margins.

Yes, part of that, Jim, is why I think we are so confident that Eastern Hemisphere is going to continue to step up quarter over quarter in its margin realizations. Because, to some extent, you are now covering those fixed costs with a wider contract base.

Yes, I just think that is a story that people kind of forget that is one of the drivers. Okay.

And second, if I could, record op -- record revenues in the entire Eastern Hemisphere -- usually -- if I am head of Eastern Hemisphere, Dave, and you asked me: What am I going to do this year? And me saying: I hope customers spend more, probably doesn't get me a promotion. When you are operating at record revenue levels, in order to increase returns, don't you have to, at some level, take some additional risk?

Well, I am not sure what you mean by risk. So, let me take a shot at this. I mean, obviously, our Eastern Hemisphere is doing well. And Joe Rainey, who heads that up, and his management team are doing a fantastic job for us.

I think, really, to continue to grow Eastern Hemisphere, one, obviously you have to take what the market gives you. And we are seeing some sort of modest-level increase in rig count there. So, that will grow -- help grow the revenue. You have to win more than your normal market share, which I believe we are doing, in terms of tender and contract win rates.

I am not sure you necessarily have to take higher risk in your contract pricing. You really have to pick and choose your spots. And we have, as we said when we responded to the first question, we also have a larger footprint in the Eastern Hemisphere now to attack the market off of.

So, I don't necessarily think we have to take risk to continue to grow our Eastern Hemisphere business. I think we are well positioned there. We have a great contract base. We have a great footprint, and we have a great management team, and I think that will all drive the revenues higher.

Okay. Gentlemen, thank you very much.

Thank you.

Thank you. Our next question comes from Brad Handler of Jefferies. Your line is now open.

Thanks, good morning.

Good morning, Brad.

Maybe I could ask you, as you think about 2014 for us, just cut up the Business a couple of different ways that you have done so in the past. How would you look at offshore growth internationally, or maybe in the Eastern Hemisphere versus onshore growth? It sounds like a lot of the opportunities you identified were actually onshore or onshore-driven for 2014?

I think it is a healthy mix of both, Brad. The offshore rig count -- we see that continuing to grow. And obviously one of our clear strategies is to outgrow the deepwater market, which we expect to do.

But, yes, there are a number of onshore opportunities as well. We think about Russia and China, and certainly the Middle East. So there is a robust onshore market out there. So I would say that they are evenly weighed; I wouldn't take one over the other.

I mean, when you clearly think about the Gulf of Mexico, the Gulf of Mexico should have a good solid growth year in 2014. Now, we did say Brazil likely is going to be flat to slightly down, and that is somewhat of a disappointment, and see 2015 being more of a transition year. But you step away from Brazil, the rest of the offshore market should be good.

Yes.

Okay. That is helpful color.

I am asking a similar question, but slightly different than your -- as you have identified your brownfield strategy, which I know is a multi-year strategy -- but how does that, in your minds, grow in 2014 versus more traditional sort of greenfields drilling and completion work?

Well, we see the first step out in Mexico. So as we get into 2014, we see Humapa getting ramped up, and so we will see contributions there.

We are selective around these projects as we take them. I think we expect to add a few projects per year, clearly Humapa being one of those, and we have got a number of other sort of things in the works. So expect that to start contributing this year.

Let me also sort of respond from a capital investment standpoint. We are going to be putting more capital in 2014 into our businesses that orient toward the mature field strategy, both the chemicals, artificial lift, and expanding our footprint there, both in North America and around the world. And then continue to build out tools and other equipment to support what we see as a coming brownfield opportunity in North America.

That's helpful. If I may, within that, I think you identified -- within the brownfield strategy, I think you identified a couple offshore opportunities, for example, offshore Norway. Do you see those as progressing?

In other words, is IOC spending, in some meaningful way, shifting to production enhancement? Is that generating some incremental opportunity for you as you tender today?

We see some of that, though I would say it is probably more focused with the national oil companies than it is the IOCs, just given kind of the type of investment profile I believe that they have. There are some offshore opportunities. But in terms of the kind of consolidated, or where we manage all the activity, those types of things, those are less focused offshore, and certainly more focused onshore.

Thank you. Our next question comes from Doug Becker of Bank of America Merrill Lynch. Your line is now opened.

Thanks. I wanted to clarify the North American revenue guidance a little bit. In the press release, it mentioned mid-single-digit growth. And the prepared remarks talking about spending in mid-single digits, and that you generally outperform underlying spending. I just wanted to reconcile those comments for North American revenue growth.

Yes, this is Dave. Let me take that. Let me sort of attack it a couple of ways.

One is that, when we look at what our customers are saying about spending in 2014, you sort of settle in the mid-single-digit range. If you look at sort of where we believe the rig count is going, which is up a little. You look at well count efficiencies, which will be up in sort of the mid- to maybe upper-single digits. And then you can drive revenues sort of off of either of those.

I think the important point is that we believe our revenue, because of our position in North America, is going to exceed whatever the market gives us. All we can do at this point is gauge off what our customers are telling us they are going to spend, and what they say is it's sort of the mid-single digits.

As I said, we will beat that because of our position. We know the rig count will go up a little. We know that efficiency is going to be better. All of that bodes well for us. But we are just trying to give you a number of data points by which you can then plug in your own growth expectations, and then just add some on top of that for what you think we will do.

So you wouldn't be balking at, say, a 7% to 9% revenue growth figure?

I am not going to let you me pin me down that specifically. All I am saying is: Whatever the market is, we are going to outgrow it.

No, fair enough.

Another one -- I appreciate the difficulty in looking at Latin America growth for the full year. Are you able to give us some perspective of: If there is relief in Brazil, if the latest award or expected award actually starts ramping up in the second half, are you able to just give some rough gauge about how big a deal those two instances could be for revenue and margins?

Yes.

Go ahead.

Yes, we are not calling anything on the first half of the year. But if we look at the full year, those are meaningful projects in Mexico. So there is some upside in terms of growth for the full year, but we need to see those get started, and work being done on those. Again, we will know a lot more about those, as we get further into the year.

The way I would probably also add to that is that -- as I think about the year, the revenue growth number is very difficult to pin. Clearly, we have talked about Brazil being lower; Mexico may have a late ramp in revenues. But what it does really make a difference in is for our margins.

We typically would like to talk about our international margins being in the upper-teens, but Eastern Hemisphere is clearly on its way. I see some relief on the cost pressure in Brazil, and Mexico activities beginning to solidify and go forward. It gives us the opportunity to get our margins in Latin America back on track with the rest of the international markets, and drive up into those upper-teens.

Thank you. Our next question comes from David Anderson of JPMorgan. Your line is now opened.

Thanks, good morning. I was wondering if you could just talk a little bit about the PEMEX mega-tender a little bit. You said it was reduced from 10 down to 8. Just kind of curious what you think the rationale was? Were those eight -- those -- like, maybe the five ATG projects? I didn't quite hear you on kind of how you articulated that.

Yes. Initially there were 10 mega-tender projects that were to be tendered. That number resulted in eight in the end, and of those eight, the reduction were in the ATG or northern Mexico projects. Expectation is that that's on the back of, really, reform.

The reform in Mexico is going to be net-net a very positive event for the service industry. But over the nearer term, there are some milestones and things that it would appear would slow down the investment, or at least sort of the decisions around some more potentially over the nearer term. So I think that was one of the drivers in terms of a smaller scope overall. I think the total expectation number there was around $3.5 billion, which initially had been expected in the $9 billion to $10 billion kind of range.

Right. So now, how did the terms end up on these contracts compared to what you were expecting? It sounds like they were worse than you were thinking. Is that fair? Because if I heard you right, it sounds like you are only expecting to win the Mesozoic contract? Is that correct?

That's correct. The terms were consistent with what we expected to see. I think we were a little surprised by some of the pricing that we saw.

I think, given that there were fewer contracts to go after, and there were a number of bidders in the bidding for the ATG projects, the pricing on those was significantly down -- surprisingly down. And it was just one of those where we -- there was not acceptable pricing for the types of projects that they are.

Got it. Now, that Mesozoic is -- just correct me if I am wrong -- that is essentially the extension of the Alliance 2 project. So you already have everything mobilized in country, so it is just a question of that cost absorption. You don't have to ramp up in the country, correct?

No, we don't have to ramp up -- it is not really an extension of the Alliance 2 project. But we have the people, the kit, all of the resources in country. We will need some rigs to work with us, but outside of the rigs, we are ready to go.

Okay.

Yes, I think, Dave -- this is Dave. Think of it as: We have the resources and people in country. It's just that, as South Alliance ramps down, those people will not have anything to do. That resource will not have anything to do for a period of time until the new contracts, Humapa and Mesozoic, ramp back up.

So rather than do a massive layoff and cost reduction, and have to turn around and hire the people straight back, we are just going to absorb the cost in the meantime. So we will not have to add very much incremental cost, in terms of where we have been. It is just a way underutilized resource for a couple of quarter period of time.

Thank you. Our next question comes from Angie Sedita of UBS. Your line is now opened.

Great. Good morning.

Good morning, Angie.

Could you talk a little bit about what you are seeing in pressure pumping, as far as pricing? Clearly, you had contracts that were being renegotiated in Q4, and we are seeing a little bit of that in Q1. Do you think that pricing could continue to be under pressure into Q2? Have you actually seen an intensification of competition from -- one of your largest peers mentioned some market share gains. So can you talk a little bit about what you are seeing in the market?

We are seeing continued pricing pressure certainly in the market. And so, as we go into looking at contracts and pricing, one of the first things we look at are the customers where we can be the most efficient and execute our value proposition. But the market is clearly competitive.

And I would also add, Angie, with respect to market share gains, it is not coming out of our hide. That is for sure. Yes, there is plenty of stacked equipment out there. There's a bit of flight to quality that goes on in this kind of market. And even though pricing is challenged, as Jeff has said, and there is some market share shift going on, it is sure not coming out of ours.

Got it.

Angie, I want to reiterate that the 200 basis points of margin improvement in North America for us is net of pricing. So while we assume that pricing will continue to be weak for us, we are working hard to make sure that that does not influence our margins negatively during the year.

All right. I assumed as much -- you said your market share would not be affected.

I guess, going to that point, Mark, on the 200-basis-point gain in North America, is that gain in margin weighted to the back half of the year, given your mark for Q1? And are you able to quantify yet, of that 200 basis points, how much is from internal measures of Battle Red and the Frac of the Future?

Well, it is not that I can't yet articulate how we're going to get there, but I don't know that I want to necessarily for public consumption. But it is our view that, as we go through the year, the margins will stair-step higher across 2014.

It is a cumulative 200 basis points of margin addition, and so we will realize it as we get into the end of the third quarter, which is typically our highest margin quarter. But it should stair-step higher in Q1 and Q2, as well, on a year-over-year basis and sequentially.

Okay.

And then, as an unrelated follow-up on the international markets, clearly 2013 was pretty impressive, where you outpaced your peers on the revenue side and operating income. And I thought, Dave, you said you expect to see the same in 2014. Can you talk about where, on a relative basis, you expect to outpace your peers? And is this a combination of market share, new technologies, or greater market penetration of some markets?

I think, Angie, it is really all of the above. I don't want to highlight a certain region, or that region all of a sudden gets a big target put on its back.

But I would say, generally, we are really pleased with where we are in terms of our Eastern Hemisphere market penetration, contract win rate, introduction of new technologies. So I would just leave it as -- I am pretty happy all the way across the board.

Thank you.

Thank you. Our next question comes from James West of Barclays. Your line is now opened.

Good morning.

Good morning, James.

Dave, a bigger picture question for you on North America. You talked about well efficiencies. Last year I think you said 14%, and you are expecting high-single digits this year. Where do you think we are in this cycle of well efficiencies? And how much more do we have to go, where the well count can really outpace the rig count, et cetera? It seems like we are starting to slow down on that.

I think clearly the low-hanging fruit has been picked. Right now, I don't see any reason why we will not continue to get year-over-year well-count efficiencies. You are starting to see sort of a massive upgrade to the rig fleets that is out there. The move to pad drilling, obviously, I think is one of the real drivers we saw last year in terms of the efficiency gains.

But as I mentioned in my remarks, the Permian now is switching from what was really a vertical to a horizontal market, and there are a lot of rigs running in the Permian right now. And I think that gives us confidence in driving the numbers for 2014 and even beyond that. Because let's say the Permian is only at 50% at the end of 2014; that still leaves a pretty tremendous upside there.

And there is other plays in the US that are still moving toward more pad, more horizontal drilling. So I think just the nature of the transition of the market, the new technologies that not only Halliburton and the other service companies have, but the rig contractors are investing more in efficiencies. So I don't really see an end to it at this point in time, but I think your big low-hanging fruit has been picked at this point.

Okay. That's fair.

And perhaps an unrelated follow-up on Brazil. Understand you are negotiating with your major customer there, about reducing your investment or your cost structure. What is the timing of when you might have some relief on the heavier cost structure than you would have expected, given the lack of contract size?

James, that is just very difficult to call at this point in time. We are working on a range of fronts to try to resolve that, talking with the customer, and certainly what could be resolution. But certainly not in the first half of the year --

Okay.

-- we don't expect to see that resolved.

Yes, I mean, the service industry generally doesn't agree on all things, all the time, but I can tell you this is one where both us and our peers are all in -- having the same discussion with Petrobras. We all really need relief at this point.

Sure. Okay. Got it. Thanks.

Thank you. Our next question comes from Waqar Syed of Goldman Sachs. Your line is now opened.

Thank you. I just want to follow-up on James's questions about efficiency. What are you seeing in terms of efficiency on the pressure pumping side? Where are we in that improvement? It has been a number of stages per day has been growing in a 24-hour time period. How do you see that trending in the coming years, and where we are in that progress?

Waqar, we don't see that outpacing the improvement in drilling efficiently, at least at this point in time. So the upshot is there is still more work to be done, so we are improving certainly completion efficiency.

The other dynamic in completion efficiency though are what we are doing with the completions. So reality is, we are seeing more stages, but we are also seeing bigger stages, and we are seeing the ability to do more things around the completion. So the concern around the completion outpacing the drilling is not necessarily a concern for us.

Okay. And then just one clarification. I just want to clarify: Did you say that the margins in North America are likely to be higher in -- or flat in the first quarter versus fourth quarter?

We expect to see those modestly higher, very modest.

Okay, great. Thank you.

Thank you. Our next question comes from Bill Herbert of Simmons & Company. Your line is now opened.

Thanks, good morning. With regard to your North America guidance in the first quarter, did I understand a flat prophecy for the quarter? Was that inclusive of an outlook for severe weather in the first quarter, or did that exclude the prospect of weather in Q1?

Yes, we described Q4 as a high stage count at the beginning of the quarter, and then trailed off with the holidays, and then a bit of a slow start to some key markets in January due to weather. But what we see as we pull out of that is sort of an inverse of Q4. So it caused, for those reasons, about flat.

Yes. It is inclusive of weather. It is just sort of assuming sort of a similar weather pattern to what we had in Q4.

Yes.

Okay.

And then secondly, did I hear you correctly, Mark, with regard to your Latin America margin roadmap for the second half of the year, that you hoped to be in the upper-teens realm, in line with your other international margins by the second half or in the second half?

Well, hope is a -- yes, that is a strong word.

Okay.

That is where I hope, but I, right now, just have no ability to forecast us getting there right now, given what we know on the revenue side and the cost side, right? We have described that we are having to carry a significant amount of cost. We don't have any relief for that cost right now. And so, we have got to get that relief in order to sort of build a roadmap to get back to those upper-teens.

So, yes, that is our hope. That is certainly what we are going to continue to drive internally. But I don't have it in my forecast right now, just because of the uncertainty around cost recovery.

Okay. Thank you.

Thank you. And at this time, I would like to turn the call back to management for any closing comments.

Thank you, Sam. On behalf of the Halliburton management team, I just want to thank everyone for your participation. And, Sam, you can go ahead and close the call.

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a wonderful day.