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    Halliburton Co (HAL)

    Q4 2023 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$40.42October 1, 2023
    Final Price$36.15December 31, 2023
    Price Change$-4.27
    % Change-10.56%

    What went well

    • Halliburton expects to generate significant free cash flow in 2024, with plans to return over 50% of free cash flow to shareholders, enhancing shareholder value. ,
    • The company has strong visibility and confidence in international growth through the end of the decade, working on tenders for work in 2025 and beyond, indicating robust demand and long-term contracts. ,
    • Drilling and Evaluation margins are expected to be materially higher in 2024 than in 2023, as previous investments are paying off, leading to higher returns.

    What went wrong

    • Halliburton expects North America revenue and margins to be flattish in 2024, indicating limited growth prospects in their largest market.
    • Anticipated delays in activity upticks in regions like West Africa and the North Sea until 2025, which could postpone international growth opportunities.
    • Reliance on collaborations to fill gaps in their portfolio highlights weaknesses in certain product lines, suggesting dependency on external partners to remain competitive.

    Q&A Summary

    1. International Growth Outlook
      Q: Can you expand on your international visibility through the decade?
      A: Jeff Miller highlighted that Halliburton has strong visibility into international projects extending through the end of the decade, with significant work planned for 2025 and beyond. They are working on tenders for next year and the following year, noting that markets like the North Sea and West Africa will "really wake up" in 2025. This provides confidence in the pipeline of work planned with customers, indicating clarity on projects in 2025 and beyond. ,

    2. Capital Returns to Shareholders
      Q: How should we think about your uses of free cash flow?
      A: Halliburton increased the dividend by 6%, reaching about 95% of pre-COVID levels. They intend to continue buying back shares, aiming to repurchase more in 2024 than in 2023. Additionally, they plan to retire debt and strengthen the balance sheet. Overall, they expect 2024 free cash flow to be at least 10% higher than in 2023, guided by an overall 50% return to shareholders. , ,

    3. U.S. Business Free Cash Flow
      Q: Is your U.S. business set to deliver more consistent free cash flow?
      A: Jeff Miller confirmed that Halliburton is establishing a more consistent U.S. business that generates strong free cash flow through cycles. The strategy includes deliberate investment, particularly in e-fleets like Zeus, and focusing on long-term value maximization. Despite market fluctuations, they have maintained a steady execution and cash flow delivery, and expect to continue this trend.

    4. D&E Margin Improvement
      Q: Where are you anticipating D&E margins going forward?
      A: Halliburton reported their best D&E margins in 15 years and expects margins to continue firming up in 2024. They anticipate D&E margins to be materially higher in 2024 than in 2023, reflecting the payoff from investments made in recent years. While there may be quarterly fluctuations, the overall trajectory is positive.

    5. Impact of E-Fleets and Long-term Contracts
      Q: How do e-fleets like Zeus affect margins and contracts?
      A: E-fleets are accretive due to their efficiency and value to clients, leading to favorable pricing and contracted arrangements. Halliburton's Zeus e-fleets create significant value, resulting in long-term contracts of around 3 years. These contracts focus on mutual returns and are not influenced by spot market dynamics. By the end of 2024, 40% of their fleet will be Zeus, increasing to 50% or more in 2025. This strategy provides stability and enhances margins. , , ,

    6. Working Capital and Free Cash Flow Guidance
      Q: Anything to know about working capital parameters in 2024?
      A: Halliburton expects free cash flow to improve by at least 10% over 2023, driven by improved income and efficiencies in working capital. They are implementing initiatives to structurally improve efficiency, such as automating invoicing processes and rolling out demand planning software. This focus aims to enhance DSOs and DIOs, contributing to better free cash flow.

    7. Minimal Exposure to Dry Gas Activity
      Q: How much of your activity is levered to dry gas?
      A: Halliburton has minimal exposure to dry gas activity, with gas work not being a significant part of their portfolio. Any exposure is mostly contracted under the Zeus solution. While they haven't included potential gas activity in their outlook, they acknowledge possible upside as LNG projects come online.

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