Halliburton Co

NYSE:HAL

Earnings Call Analysis

Halliburton Q3: Stable Results, Strategic Growth

Halliburton showcased robust third-quarter performance with an 8% year-over-year increase in total company revenue and a 23% increase in operating income. North American revenue remained steady, whereas international revenue surged by 17%. The completion and production division saw an 11% revenue boost with significant margin expansion. Cash flow was strong, with $874 million generated from operations and $511 million in free cash flow. The company expects high teens year-on-year growth internationally in 2023, with double-digit market growth projected for 2024. Capital expenditure was $409 million for Q3, and over $2 billion in free cash flow is anticipated for full-year 2023. The upcoming quarter foresees a 3-5% decrease in Completion and Production division revenue but a 4-6% increase in Drilling and Evaluation division revenue, with operating margins varying accordingly.

Impressive Growth and Strong Margin Performance

Halliburton's third quarter of 2023 reflected a robust performance with total company revenues climbing 8% from the previous year and operating income rising by 23%. Underpinning this success is a pronounced 17% year-over-year growth in international revenue, revealing the profitability of their expansion outside North America.

Stabilizing Influence of North America Operations

Revenue in North America remained approximately flat compared to the previous year. The modest reduction in sequential revenue by 3% did not hamper their operations significantly, which indicates a resilient business segment despite a roughly 20% decline in the U.S. rig count since the fourth quarter of 2022. This resilience is attributed to Halliburton's strategic shift towards maximizing value, which includes investments in differentiated technologies and derisking initiatives, illustrating a departure from their prior, more volatile cycles.

Robust Cash Generation and Shareholder Returns

Halliburton has demonstrated considerable success in generating positive cash flows, with $874 million produced from operations and $511 million in free cash flow. Complementing their strong financials, the company repurchased $200 million of common stock and cleared $150 million of debt within the quarter, underscoring their commitment to providing value back to shareholders.

Upbeat Outlook and Shareholder Value Commitment

The company foresees sustained demand growth for oilfield services into 2024 and beyond, reinforcing the potential longevity of the current upcycle. Halliburton is poised to leverage this demand to bolster their free cash flow, bolster margins, and increase cash returns to shareholders.

Flourishing International Business and Expansion

International growth remains a powerhouse for Halliburton, contributing to 17% revenue growth compared to the previous year. Executing a strategy of profitable international growth, the company is on track for high-teen growth rates for 2023, with expectations for international activity to rise further into 2024, projecting double-digit market growth. Key strategies include the deployment of differentiated technology, selective contract wins, and a collaborative approach with customers.

Strategic Focus on the Offshore Market

Halliburton has effectively cemented its position offshore, which now comprises over 50% of its operations outside North American land. The company's completion and production (C&P) as well as drilling and evaluation (D&E) operations are significantly contributing to this sector with substantial portions of their revenue generated from offshore activities. Halliburton's leadership in many well construction product lines essential for offshore development is a significant competitive advantage.

Solid Earnings Amid Flat Sequential Revenue

For the third quarter, Halliburton reported a net income of $0.79 per diluted share. While the overall company revenue remained flat sequentially at $5.8 billion, the steady financial results emphasize the company's ability to maintain profitability even without substantial top-line growth.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Halliburton Company Third Quarter 2023 Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, David Coleman, Senior Director of Investor Relations.

[David Coleman, executive]

Hello, and thank you for joining the Halliburton Third Quarter 2023 Conference Call.

We will make the recording of today's webcast available for 7 days on Halliburton's website after this call.

Joining me today are Jeff Miller, Chairman, President and CEO; and Eric Carre, Executive Vice President and CFO.

Some of today's comments may include forward-looking statements reflecting Halliburton's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2022, Form 10-Q for the quarter ended June 30, 2023, recent current reports on Form 8-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Our comments today also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our third quarter earnings release and in the quarterly results and presentation section of our website.

Now I'll turn the call over to Jeff.

[Jeffrey Miller, executive]

Thank you, David, and good morning, everyone. Halliburton delivered an impressive third quarter. Our margin strength demonstrated the power of our strategy. I am pleased with the stability of our North America business and the profitability of our international growth. Let's jump right into the highlights.

Total company revenue increased 8% year-over-year, while operating income grew 23%. International revenue grew 17% year-over-year with strong activity in all geographic markets. North America revenue was roughly flat year-over-year and down 3% sequentially. Our Completion and Production division grew revenue 11% year-over-year, while margins expanded 280 basis points. Margins expanded 105 basis points sequentially, driven by international operations, while North American C&P margins remained approximately flat to last quarter.

Our Drilling and Evaluation division grew revenue 4% year-over-year, while margins expanded 168 basis points. Finally, we generated $874 million of cash from operations, $511 million of free cash flow and repurchased approximately $200 million of common stock and $150 million of debt during the quarter. To our over 45,000 employees globally, thank you for another outstanding quarter. You executed our strategy and delivered excellent financial results. I'll begin with what I see in the macro environment.

Reliable and affordable energy remains at the very center of global economic growth and security. The most recent World Oil Outlook from OPEC expects 10 million barrels of oil demand growth before the end of the decade and further demand growth through 2045. Maintaining production, while adding incremental supply requires meaningful long-term investment in both short- and long-cycle barrels to meet demand. This challenge is reflected in our customers' activity levels and future development plans.

Consistent with this outlook, we expect continued demand growth for oilfield services in 2024 and beyond. Everything I see today strengthens my conviction in the long duration of this upcycle. Against this backdrop, I believe the execution of our strategy will deliver strong free cash flow, growing margins and more cash returned to shareholders.

Starting with North America. Halliburton performed exactly as I expected, delivering our strategy to maximize value in North America. Our North America business has changed. Despite the U.S. rig count decreasing around 20% since Q4 of 2022, Halliburton delivered strong revenue and margin performance during this period. That's quite a different result from what Halliburton would have delivered in prior cycles.

Since 2015, we changed our strategy, we changed our operating model and the market structure changed. Our strategy in North America is to maximize value. Executing this strategy made many of our decisions over the last few years crystal clear, including our decision to invest in differentiated and value-added technologies, such as our Zeus electric fleets, automation and our fiber optic downhole fracturing diagnostics.

We know that in a competitive market to capture value, you must first create value. Our decision to derisk returns and maximize free cash flow by only building fracturing equipment under long-term contracts. And finally, our decision to retire old equipment when returns are not sufficient rather than to pursue market share. Maximizing value means just that. Do the things that improve returns and stop doing the things that lower them.

Next, we fundamentally changed our operating model. We removed $1 billion of fixed cost from our business in 2020. Those cost reductions were structural and remain in place today. As a result, today, our cost structure is more variable and less fixed. And it's one of the reasons we have the flexibility to pursue returns rather than market share. Our commitment to continuous improvement drove significant changes in the way we work, which delivered efficiency improvements in our operations. This resulted in a 68% improvement in hours pumped per crew in just the last 4 years.

Finally, the E&P and Services Markets fundamentally changed. Today, the market is more consolidated, more focused on returns and more focused on free cash flow generation. We see the benefits of this change. Customers assign value to technology and efficiency and the service industry is rewarded for returns rather than growth.

Never before has the success of our North America business been better aligned with the success of our customers who make significant long-term investments in the region. I expect the combination of our value proposition and strategy will deliver a more profitable business that generates more free cash flow for years to come.

Now let's turn to international markets where Halliburton's revenue grew 17% compared to the same quarter of last year. In the third quarter, we saw activity increase in both divisions, though, particularly in our Completions and Production division. Our results clearly demonstrate Halliburton's strong global competitiveness in both divisions and the successful execution of our strategy for profitable international growth.

We execute our profitable growth strategy through our differentiated technology offerings, selective contract wins and our unique collaborative approach with customers, all of which build on our foundation as a leader in service quality and execution. I expect the market for oilfield services will further tighten as asset-intensive offshore activity increases.

More importantly, I expect that pricing returns will serve as the mechanism to allocate scarce equipment. This is a great market for Halliburton to execute its strategy for profitable international growth. I'm excited about our international business, and we are on track to deliver high teens year-on-year growth in 2023. Looking ahead, 2024 is coming into view and I expect to see international activity, again, directionally higher with market growth in the double-digit range.

I'd like to take a few minutes and talk more about our global offshore business. Let me start with some color. Offshore represents more than 50% of our business outside of North America land. About 25% of our C&P revenue is generated offshore. More than 40% of our D&E revenue is generated offshore. All of our regions contribute materially to our offshore revenue. All of our product lines operate offshore and Halliburton leads in many well construction product lines key to offshore development.

Customers choose Halliburton because we collaborate and deliver impactful results. The combination of our leading product lines and our collaboration from design through well delivery is what drives superior results for our customers. One example is in Norway, where according to IHS Rushmore data, the Aker BP Alliance, where Halliburton provides well construction services consistently represents the top quartile of drilling performance. This performance matters even more in a market where offshore rig rates and spread costs are rising.

With our customers, we deliver some of the most technically-complex wells in our industry. We provide leading solutions in many areas, including high-pressure deepwater completions, complex multilateral junctions, ultra-deep reading LWD tools, narrow-margin drilling fluids and tailored lightweight cement.

These solutions enable our customers to efficiently and reliably develop their offshore reserves and maximize the value of their assets. Execution of our value proposition has created a strong offshore business, underpinned by efficiency and differentiated technology. Our ability to compete in all parts of the offshore business, including exploration, development and intervention has never been better.

Let me close with this. I'm both excited and confident in the outlook for our business. The duration of this upcycle, the clarity and depth of our strategy and the strength of our execution.

Now I'll turn the call over to Eric to provide more details on our financial results. Eric?

[Eric Carre, executive]

Thank you, Jeff, and good morning. Our Q3 reported net income per diluted share was $0.79. Total company revenue for the quarter was $5.8 billion, flat sequentially, while operating income was $1 billion, a sequential increase of 3%. Operating margin for the company was 17.9% in Q3, a 207 basis point increase over Q3 2022.

Beginning with our Completion and Production division, revenue in Q3 was $3.5 billion, flat sequentially, while operating income was $746 million, an increase of 6% sequentially. C&P delivered an operating income margin of 21%. These results were primarily due to increased stimulation activity internationally, higher cementing activity in the Eastern Hemisphere and improved completion tool sales globally. These increases were partially offset by lower pressure pumping services in North America.

In our Drilling and Evaluation division, revenue in Q3 was $2.3 billion, flat sequentially, while operating income was $378 million, which was also flat from Q2. D&E delivered an operating income margin of 16%, an increase of 168 basis points over Q3 last year. Sequential changes were driven by higher fluid services in Middle East, Asia and Latin America and increased wireline activity in Latin America and Europe, Africa. These were offset by decreased drilling-related services, lower project management activity and software sales in Mexico.

Now let's move on to geographic results. Our Q3 international revenue increased 3% sequentially. Latin America revenue in Q3 was $1 billion, a 5% increase sequentially. This increase was primarily due to increased pressure pumping services and drilling fluids in Argentina, improved completion tool sales in Brazil and higher project management and drilling-related services in Colombia and Ecuador. Partially offsetting these increases were lower software sales, decreased project management and lower well construction services in Mexico.

Europe/Africa revenue in Q3 was $734 million, a 5% increase sequentially. This increase was primarily driven by improved well construction services, higher completion tool sales and improved wireline activity in Norway and higher completion tool sales in the Caspian area. These were partially offset by lower activity in Africa across multiple product service lines.

Middle East/Asia revenue in Q3 was $1.4 billion, which was flat from Q2. These results were driven by higher well construction in Iraq, increased drilling-related services and completion tool sales in Qatar and higher pressure pumping and fluid services in Asia. These were offset by decreased activity in multiple product service lines in Kuwait and India and lower drilling, testing and well intervention services in Asia.

In North America, revenue in Q3 was $2.6 billion, a 3% decrease sequentially. This decline was primarily driven by decreased pressure pumping services in U.S. land and lower well intervention services in the Gulf of Mexico. Partially offsetting these decreases was improved completion tool sales in the Gulf of Mexico.

Moving on to other items. In Q3, our corporate and other expenses were $64 million. For Q4, we expect our corporate expense to increase by about $5 million as a result of timing and special items. In Q3, we spent $23 million or about $0.03 per diluted share on SAP S/4 migration, which is included in our results.

For Q4, we expect these expenses to be approximately $14 million which makes our spend approximately $50 million for 2023 as planned. Net interest expense for the quarter was $93 million, which was flat from the prior quarter. For Q4, we expect this expense to remain approximately flat.

Other net expense for Q3 was $28 million, primarily related to unfavorable foreign exchange movements. For Q4, we expect this expense to remain approximately flat. Our effective tax rate for Q3 came in at 21%. Based on our anticipated geographic earnings mix, we expect our Q4 effective tax rate to remain approximately flat.

Capital expenditure for Q3 were $409 million. We anticipate that for the full year, capital expenditure will be approximately 6% of revenue. Our Q3 cash flow from operations was $874 million and free cash flow was $511 million. We expect to generate over $2 billion of free cash flow for the full year 2023.

Finally, consistent with our capital return policy of returning at least 50% of free cash flow to shareholders, we repurchased approximately $200 million of our common stock during Q3. Additionally, during Q3, we repurchased $150 million of debt.

Now turning to our near-term outlook. Let me provide you with some comments on how we see Q4 unfolding. In our Completion and Production division, we anticipate revenue to decrease by 3% to 5% sequentially, while operating margins are expected to decrease 25 to 75 basis points as a result of lower North America land activity due to holidays and lower winter month efficiencies, partially offset by higher year-end completion tool sales. In our Drilling and Evaluation division, we anticipate revenue to grow by 4% to 6% sequentially, while operating margins are expected to increase 75 to 125 basis points due to seasonal software sales and higher global activity.

I will now turn the call back to Jeff.

[Jeffrey Miller, executive]

Thanks, Eric. Let me summarize our discussion today. Halliburton delivered an impressive third quarter. Our margin strength demonstrated the power of our strategy. I am pleased with the stability of our North America business and the profitability of our International growth. Our North America business performed exactly as I expected, delivering our strategy to maximize value in North America.

Our International results clearly demonstrate Halliburton's strong global competitiveness in both divisions and the successful execution of our strategy for profitable international growth. Execution of our value proposition has created a strong offshore business, and our ability to compete in all parts of the business has never been better.

And now let's open it up for questions.

[Operator]

[Operator Instructions]

Our first question is from Dave Anderson with Barclays.

[John Anderson, analyst]

So Jeff, the duration story internationally is very compelling with the capacity expansion in Middle East, offshore FIDs and offshore work that you were talking about. So I wonder if you could talk a little bit about how that translates into the cadence of international growth over the next 12 to 24 months. International sales looks a little sluggish this quarter, MENA was flat. I know Kuwait has been a bit slow, but I'm just wondering, should we start to see the region accelerate in 2024?

[Jeffrey Miller, executive]

Yes. Thank you, Dave. And look, I expect that it will. And I've talked about growth for 2024 double digits. But let's just -- to frame that, our strategy is profitable international growth. And we've grown 20% in '22, high teens this year, double digits next year. So I'm comfortable with the growth and expect we will continue to see strong growth, certainly above market growth.

But we're doing that while improving margins and expanding margins. And so I think that our strategy is crystal clear around what we're going about. There's plenty of market there to do that and expect we will continue to do that in '24 and beyond.

[John Anderson, analyst]

And if I could just shift over to kind of one of the big topics out there is M&A, Chevron, Exxon, consolidated APs in North America. Can you talk a bit about what this means to Halliburton. On the one hand, I'm thinking this should provide you really significant visibility on their development programs. On the other hand, perhaps your pricing levers might be a bit compromised if you only have a handful of large customers. Could you just kind of, big picture, talk about what it's meaning to your business, please?

[Jeffrey Miller, executive]

Yes, big picture, good for Halliburton. I think it does a couple of things. What we're seeing. Certainly, it demonstrates the long-term importance of oil and gas and more specifically, the long -- worldwide and more importantly, the long-term importance of North America. I mean what we're seeing are big players that take a really long view, and these are the kind of customers that clearly work through cycles.

And so I think we'll see a much more stable North America I really like our position with our customer mix today is clearly biased. Most of our work is with very large privates and publics. And so I like our position there. And then more importantly, these are customer -- we -- these are customers that care about the kinds of things we work on at Halliburton.

So I -- well, we work on, I think, important things like productivity, efficiency and recovery. And we talk about all 3 of those in our business. And I think we're unique in the way that we approach those. So I think it will be good for Halliburton.

[John Anderson, analyst]

And was this accelerated adoption of e-frac, you think, with both of those 2 customers?

[Jeffrey Miller, executive]

Look, I think that's exactly the kind of tool that customers like this want to have in their hands, and we're seeing pretty good adoption. I would say north of 60% of our business today are repeat customers. So these aren't science projects. This is things that are being baked into workflows.

[Operator]

It comes from the line of Neil Mehta with Goldman Sachs.

[Neil Mehta, analyst]

One of the notable things about the quarter was the return of capital, the $200 million of share repurchases. Maybe you could just frame out for the market, how you're thinking about your share repurchase strategy and setting us up for your framework as we go into 2024?

[Eric Carre, executive]

Yes. Neil. So dividends and it's clearly part of our return strategy. But directionally, nothing has changed in our overall policy of returning about 50% or over 50% of our free cash flow to shareholders. I mean right now, we like the flexibility that buybacks give us, and we're thinking similarly as we get into next year, if we look at what we've done this year, we've returned $1 billion already to shareholders so far this year. As our business continues to grow and our margins continue to improve as well. I would expect that these overall returns would be higher as we get into 2024.

[Neil Mehta, analyst]

Okay. That's helpful. And we appreciated a little bit of color on 4Q, but I was wondering if you could kind of unpack some of that guidance a little bit more, talk about what you're thinking about from a regional perspective? And any comments that we need to keep in mind as we think about the next quarter sequentially.

[Eric Carre, executive]

Yes. I think, Neil, we're typically giving guidance on a division basis, which is the way we report numbers, and I think we will leave it at that.

[Jeffrey Miller, executive]

Well, maybe just a little bit of color around North America, we're going to see some seasonality as we've described it in the last few years. We've had really strong tailwinds into Q4. I would expect this year, we'll see what I would describe as more normal seasonality. And then clearly, there will be completion tools and other sales in there that help. Internationally, we'll probably see software sales in Q4, probably Q1 and more activity and more pricing. And hopefully, that's helpful color.

[Operator]

And it comes from the line of James West with Evercore ISI.

[James West, analyst]

If I could, I'd love, Jeff, as you would talk a little bit about the competitive environment that you see in front of you now. It seems to me that we've had a big change in the overall market over the last decade or so with one competitor kind of dropping back, one moving into other non-oil and gas businesses and so kind of leaving the oil and gas side is somewhat a duopoly for yourself and your main competitor.

But both of you are focused on returns. And so it's not a pricing fight or a market share fight, it's kind of, hey, we're in the same game, let's generate cash, let's generate free cash flow to get back to shareholders. Let's get pricing up for returns. Is that kind of how you see '24, '25, '26 unfolding or am I mistaken in my view, we've got a different competitive environment?

[Jeffrey Miller, executive]

Well, James, it's highly competitive in the marketplace. And we are absolutely focused on our strategy at Halliburton. And I've been really clear about that. And so independent of what anyone does in the marketplace from a Halliburton standpoint, we are maximizing value in North America. We are growing profitably internationally, and driving capital efficiency. And I think some of the cash flows that you see and improving cash flow that you see is driven out of our fundamental strategy to develop R&D that is more capital efficient.

And so this has been a strategy underway for probably 5 or 6 years, maybe longer. And today, we're seeing the fruits of that. But from a competitive perspective, highly competitive marketplace. And we're always continuing to lower total cost of ownership for our customers and also drive the 3 things. And the outcome of that, clearly -- the outcome of that is clearly better free cash flow, more cash flow return to customers, but it starts with that basic strategy.

[James West, analyst]

Right. Got it. Okay. And then if we think about North America as this cash machine, as I think about it for you guys, with some seasonality here in the fourth quarter, do you anticipate pricing degradation? Or do you think that everything kind of holds up here and we're in just kind of this continued harvesting period.

[Jeffrey Miller, executive]

Well, look, I think that North America, as we look forward into '24, the consolidation activity that we've seen is clearly a demonstration of how important North America is, and the kind of environment that we're in today, it's hard for me to imagine operators want to be smaller rather than bigger given the $85, $90 commodity price. So I think that will drive certain amount of activity from here.

From our perspective, we see largely a steady market from -- as you described it, just partly because we are focused on retiring diesel fleets and transitioning to electric. We've got a very clear strategy around North America. And we think our -- and we believe that our service quality, performance and technology, those get better every day, and they drive margins. So this is an important component. They drive margins.

And I think our customers understand the level of investment required in order to deliver service quality, performance and technology. So that's -- we've seen what this market looks like when we burn up equipment at very low returns that don't allow for that reinvestment, probably we've seen that, that's not a good outcome for -- certainly not for service companies, but it's also not a good outcome for operators. So I think that's what gives me confidence in sort of the stability of this. And to that point, we're mostly I'd say, mostly contracted for 2024.

[Operator]

It comes from the line of Roger Read with Wells Fargo Securities.

[Roger Read, analyst]

Yes. Probably just to follow up on a couple of the questions already been asked, maybe slightly differently. As you think about the outlook here for the fourth quarter and maybe the first half of '24, I was just curious where do you feel like you're being properly cautious, maybe slightly overly cautious and where you think things actually need to come through to sort of hit the numbers, right? I'm just sort of looking for some guidelines maybe of what to pay attention to as the quarter unfolds.

[Jeffrey Miller, executive]

Look, I think the guidance we've given you is fairly clear, and we've got a lot of confidence in the way we looked at the market. And as I described, seasonality in North America, it's something we've certainly seen before and we know what that looks like. I expect our international business continues to do -- continues to grow, and we've already sort of laid out what we expect this year to look like.

So I feel confident in our outlook. And as we go into the first half of next year, I think that we're going to clearly see North America up from here. Maybe that's the color that wasn't clear when I answered the last question. But in terms of sort of where the commodity price is and also not as dependent on that, but really what we're seeing in terms of customers' plans. And also, just the decline rates in North America.

So the reality is you have to do more work in order to stay flat. And so I suspect that we'll see some of that as well. As the rest of next year plays out, it's too early to call that. We don't have budget numbers from customers. But the customers operating in North America today are the kinds of folks that execute their plans. And so those plans will be executed. I hope that's helpful.

[Roger Read, analyst]

Yes, it is. My follow-up question is a little bit different tack. But it gets back to some of your opening comments about adjusting your cost structure, less fixed, more variable, we've typically thought of the way to measure performance with service companies in Halliburton off the incremental margins.

But if the fixed costs are becoming more variable, then maybe we don't see quite the same change in the incremental margin, but we'd still pay attention to the absolute margin. So maybe just as a way to ask about where you think the absolute margin can go relative to what we've seen over the last several quarters, any expectations there. I mean is it these margins with revenue growth or margin expansion from here?

[Jeffrey Miller, executive]

Well, look, I tend to always think more about margin expansion just because it's sort of core to how we're operating the business. But I also -- I think that the cost reductions have been super important. And I think a lot of what we've seen has been off the back of that. But that's critical to how we run the business. And as I've said, maximizing value in North America is our fundamental strategy, and that will translate into strong incrementals, which we've seen.

And I don't expect those have gone away, but that's partly because of the type of equipment we're putting in the market as much as anything. And so as we continue to pivot from diesel to electric, I would expect to see over time as those are -- go into the marketplace, stronger incrementals. I would also say the same about what we're doing sort of quietly, but equally important with drilling tools in North America.

So we have been able to put together much better capital efficiency around our drilling business, and it's gaining traction. So those are the kind of things that drive incrementals even off of a fairly low fixed cost base.

[Operator]

And it comes from the line of Scott Gruber with Citigroup.

[Scott Gruber, analyst]

Jeff, the trends in the U.S. certainly seem positive for Halliburton. So my question is if we experience just a half recovery in market activities, so let's just say we get back to about 50% of the rigs that we lost in the U.S. In that scenario, can Halliburton get back close to operating your peak frac fleet count from earlier this year. Can you get back close to peak numbers in that scenario?

[Jeffrey Miller, executive]

Yes. Thanks. So I mean, look, we've got a really good position in North America. And I think as we look at '24, a couple of things, even beyond the activity is the -- I view we have asymmetric sort of opportunity in North America. So I've said, I expect activity to be up, not down as we go into '24, just given where we are and as you described it. But the opportunity is around demand we see for e-fleets. So that's an opportunity that is largely unique to us in terms of the way we're approaching that.

And certainly, our drilling business is equally an asymmetric opportunity for Halliburton just given the fundamental change in technology and the ability to put that to work in North America. And I think that will benefit on its own just from the technology, but equally so, maybe from any growth in rig count will only accelerate the uptake on that technology.

[Scott Gruber, analyst]

Got it. And another unique opportunity for Halliburton has been on the production side of the business, particularly outside of the U.S. as you take in the Summit business internationally and build the chemical facility in the Middle East. Can you just update us on the outlook for continued share gains within production outside of the U.S. in 2024?

[Jeffrey Miller, executive]

Yes, thanks. The lift business continues to grow. I mean, this is a fantastic technology. And the reason it's leading in North America is because of its execution and its technology. And those are the same reasons that we're seeing the growth internationally. And so also an initial really solid contract in Kuwait that has continued to expand in the Middle East with trials and opportunities and actually getting meaningful traction similarly, in Latin America, where we had quite a bit of success in a variety of countries, including Ecuador and others.

And look, lift is becoming -- lift -- our ESPs are becoming more resilient, they get -- the technology continues to improve. The Summit team is at the leading edge of that. And so look, we have very high expectations for where they go and expect that, that is, again, another unique international growth opportunity for Halliburton, very resilient in the North America sort of independent of activity -- rig count activity. And then the chemical business is -- yes, it continues to get traction. We're on pace. We're on plan, I would say, with the plant in the Middle East. So it's doing what we had expected it to do. And so pleased with where we are.

[Operator]

And it comes from the line of Luke Lemoine with Piper Sandler.

[Luke Lemoine, analyst]

Jeff, you talked last quarter about a record number of Zeus fleets that you signed in 2Q. I wanted to see if you could give us a qualitative update on incremental Zeus fleets maybe interest from customers and how you see your Zeus program shaping up for '24? And then if you could provide any commentary on conventional equipment displacements, that would be helpful, too.

[Jeffrey Miller, executive]

Look, we've continued on the track we were on. We've continued to see very strong demand. Yes, we've signed up new fleets this quarter. We put a couple of work, I believe the -- that trajectory is unchanged. And so very pleased with the trajectory that we see around e-fleets and they're performing very, very well. So that continues to sort of build up the confidence of the market and that technology. I think that the fact that they are lower TCO than existing equipment is a big part of why they are successful.

From a displacement standpoint, we've described as we bringing out electric equipment, we would retire diesel equipment. And I've always said, it's not a perfect science of 1:1, but we've had an opportunity this year to retire diesel fleets, which we've described. And by doing that has effectively accelerated the marketplace. And what we're really pleased to see a repeat customer. And I think that's an important component of confidence in the technology, customers come back for a second one.

[Operator]

It comes from the line of Stephen Gengaro with Stifel.

[Stephen Gengaro, analyst]

Two things for me. The first, when you think -- you mentioned this I think a little bit earlier, Jeff, but when you think about U.S. production levels, where do you think frac fleet activity needs to be? Are we around that level, do you think, to keep production flat under or over.

[Jeffrey Miller, executive]

Look, I think that's going to be unique to different and certainly the different operators and levels of efficiency and many other things. Look, I think that we'll know a lot more as we go into next year and start to see where production levels are. Clearly, this year saw a lot of broad activity by a lot of operators early in the year, and I suspect North America is getting the benefit of that right now.

There was a strong -- the private market was super busy the first year -- part of the year 2023. You saw that group not really drill wells as we got into the late summer, which is the time we normally would. And so I think that will weigh on probably production as we go into '24. That said, we've got a commodity market that is probably quite supportive. And so it'd be hard to imagine less, not more.

But in terms of production going into 2024, it would seem that a big chunk of what was added in '23 is not repeating right now which could weigh on production. That said, it's -- as I've said before, I think we'll see activity up, not down from here for those reasons.

[Stephen Gengaro, analyst]

Great. And then my follow-up question was around sort of the maybe lesser Tier 1 acreage out there and sort of the impact that you think it has on how's business from both the pressure pumping but also across C&P in North America, as far as -- does it help? Do you think efficiencies are slowing on the completion side. So how does that phenomena play into sort of demand and service intensity of sort of on a per production or per well basis.

[Jeffrey Miller, executive]

Look, it drives service intensity up without question. And that's good for Halliburton. It also drives technology in terms of things like our downhole diagnostics, which we call SmartFleet. But I mean I think addressing productivity per foot which comes in the form of efficiency, sand placement, reconciling all of those things between well design and production, having the tools to do that, and that's precisely what we introduced to the marketplace in the form of SmartFleet, which is a critical building block in my view, solving for that. And I think that's why we're seeing uptake on that technology.

So I think that never bet against this industry ever. I would -- I mean our customers in North America are very smart, very good, very competitive. And the history of this industry broadly is improving recovery factors, whether it's through process and methodology or automation or in many cases, just physics and science.

And I think that what that does do is it drives more reps for Halliburton. It will drive more sand in wells that will do a lot of things. But I also expect, as we've done for so many years that we'll see the actual breakeven cost or the cost of producing oil and gas in North America continue to come down on the back of technology.

[Operator]

It comes from the line of Marc Bianchi with TD Cowen.

[Marc Bianchi, analyst]

I wanted to ask about the C&P performance here in third quarter and the outlook for fourth quarter. If I look at sort of the original guidance for third quarter, it was for margins to be flat, but they ended up growing by 100 basis points. And then as we look to fourth quarter, the decline is kind of guided to 100 basis points. Was there a pull forward of some completion tool sales that would usually occur in the fourth quarter. Is that explaining it? Or are there some other elements that we should be thinking about as we bridge from where we were in the second quarter?

[Jeffrey Miller, executive]

Look, I expect to see strong performance from C&P, Q4 and beyond. Look, I think that I've described some seasonality. But I think what you're really seeing is the quantity and the quality of the development work that's happening around the world. I mean, you saw equipment is clearly tight, moving up. We've got a leadership position. And several things in C&P, whether it's production enhancement, which is very important internationally as well, cementing and completion tools. And then certainly, it helps that North America executed very well. So we've seen flat margins despite the rig count being down.

[Marc Bianchi, analyst]

Okay. The other one I had was on kind of the international growth. So if I look at your Middle East and Africa, it was flat this quarter. I'm curious how you're thinking about that region and maybe the other regions if we're going to get to sort of a low double digits for the year. Are any regions leading that? Or would you expect them all to grow at a similar type rate?

[Jeffrey Miller, executive]

Look, as I said, I expect we finished this year at high double digits, not low double digits. And so look, we expect to see growth, but we're seeing growth everywhere. I mean, growth can be lumpy at different times. It depends on what's happening in a particular region on any given day or set of quarters.

But I would say this quarter, we've grown 17%, overall, and would expect to see solid growth in '24. And so that will be in broad region, but I am not concerned at all about quarter-to-quarter where growth happens to be. We've seen very strong growth in Middle East earlier this year, and we'll probably see growth for the full year.

So I think that quarter-to-quarter, trying to measure that is not as impactful as sort of year-on-year. And I think we take a set of assets and we put them to work where we see the best returns on them. And some of those C&P margins that you're seeing are at the root of that.

[Operator]

It comes from the line of James Rollyson with Raymond James.

[James Rollyson, analyst]

Jeff, I just had one question. On the pricing front, you've talked about this, obviously, over the past few quarters. And my recollection historically is international pricing kind of takes a longer cycle to roll over. I'm kind of curious what you think -- what inning you think we're in from a pricing perspective if we're truly in this longer duration cycle and just how you think about that impact from here on margins since your margins are pretty strong relative to historical cycles already.

[Jeffrey Miller, executive]

Look, I think that continue to strengthen. The -- continue to strengthen. I'm going to try this one more time. We expect margins to continue to strengthen internationally because they tend to move 1/3, 1/3, 1/3. However, what's important is we're also seeing growth in offshore at the same time. And so we've got a tightening of capacity that sort of comes at a higher rate from offshore work just because it requires more capital offshore than it does onshore.

And so the type of activity that we're seeing is continuing to tighten the market. At the same time, so that's driving pricing to a large degree. And I think the type of activity that we see planned that is either underway or being tendered or just being planned that clearly extends well into the decade is going to serve to drive our pricing.

[Operator]

It comes from the line of Kurt Hallead with Benchmark.

[Kurt Hallead, analyst]

So my -- I'm kind of curious here, Jeff, right, you given -- mentioned a number of different positive factors, right? That's driving your business, both internationally and domestically. And on the domestic front, right, your fleet mix, technology, service quality, et cetera. So with that dynamic and with those -- with that kind of mix, right, are you confident or comfortable enough to suggest that you think your North America revenue could grow in 2024, even if overall activity is flat or down?

[Jeffrey Miller, executive]

Yes. Yes. I mean, again, I think we've got some unique opportunity. Asymmetric sort of positioning with Halliburton in terms of electric fleets that we're able to do that the market wants and that we can produce that is unique to Halliburton. And also, as I've described, our drilling technology as that grows in North America, that will be, again, an opportunity for growth for Halliburton that probably won't be consistent across the broader piece of that. So yes, I am confident that Halliburton has the ability to -- will grow.

[Kurt Hallead, analyst]

Okay. Great. Now I have a follow-up. I think in your prior conversations, if I understood this correctly that when you're being approached by customers to talk about e-fleet opportunities. You guys are kind of looking at contractual commitments that maybe could be as long as 3 years. Is that still the case?

[Jeffrey Miller, executive]

Yes. Look, I think that the -- look, it's a very good technology. We've talked about maximizing value in North America. That is what we're doing. And part of maximizing value in North America is building technology that customers want and creates value for customers. And for that, this is a fairly low risk decision by an operator realistically. The operators that we're talking to about e-fleets are the kind of operators that will always have equipment working.

The reality is the first question is describe a scenario where you won't be fracking at all. And the answer to that is there is no scenario where a large operator will not be fracking. Then it becomes, why wouldn't you want that one fleet at least to be your lowest cost operating fleet because it's burning natural gas, it's emitting less and it's working at the highest performance.

At that point, this becomes a much easier discussion because it is the lowest cost operating fleet. It is extremely high efficiency and it lowers their overall cost. And so all of a sudden, that type of commitment isn't a huge hurdle to get over for customers that are committed to the long term in this business. And that's been our experience. And I think that new capital should earn a return as part of maximizing value, and we've got something that creates value for customers.

[Operator]

Thank you. And this concludes the Q&A answer period. I will now turn the call back over to Jeff Miller.

[Jeffrey Miller, executive]

Thank you, Carmen. Before we close out, Halliburton delivered an impressive third quarter. And our margin strength demonstrated the power of our strategy. Everything I see today strengthens my conviction and the long duration of this upcycle. So I look forward to speaking with you next quarter. Carmen let's close out the call.

[Operator]

Thank you. And with that, we thank you for participating in today's conference. You may now disconnect.