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Text: These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2020, Form 10-Q for the quarter ended September 30th, 2021, recent current reports on Form 8-K, and other Securities and Exchange Commission filings.
Our comments today also include non-GAAP financial measures.
2021 finished strong for Halliburton, and I'm excited about the accelerating upcycle as we enter 2022.
We have an effective value proposition and benefit from increasing activity both in North America and international markets.
At the same time, we see improving service pricing in both markets.
Throughout this upcycle, I expect Halliburton to grow profitably, accelerate free cash flow generation, strengthen our balance sheet, and increase cash returns to shareholders.
But first, I want to take a minute and recognize the men and women of Halliburton for their execution on every dimension of our business: safety, service, quality, and financial results.
In spite of global complexity in 2021, you outperformed.
I believe 2022 will be a strong year for our industry and especially for Halliburton.
While global energy demand and economic growth demonstrated resilience, global energy supply has shown its fragility.
The impact of several years of underinvestment in new production is now apparent.
And the structural requirement to invest around the wellbore is crystal clear.
We see increasing customer urgency and a pivot back to what creates value for Halliburton.
Our customers demand reliable execution, dependable supply chains, effective technology, and a collaborative service provider to maximize asset value.
And this is at the core of Halliburton's unique value proposition.
But first, I'll highlight some of our 2021 accomplishments.
We finished the year with total company revenue of $15.3 billion and operating income of $1.8 billion.
Both of Halliburton's divisions grew revenue and margins this year.
Our completion and production division finished the year with 15% operating margin, driven by activity improvement despite inflationary pressures.
We expect to build on this margin growth in 2022 as global activity and pricing improve.
Our drilling and evaluation division margins remained firmly in double digits throughout 2021 and achieved full-year margins of 12% for the first time since 2014.
This is a good demonstration of our steady march forward, and we are not done.
I am pleased with the trajectory of our international business.
International revenue and operating income increased every quarter in 2021.
In North America, Halliburton achieved 36% incrementals year on year as U.S. land activity rebounded and we maximized the value of our business.
We announced our science-based emission reduction targets, added 11 new participating companies to Halliburton Labs, and were named to the Dow Jones Sustainability Index, which highlights the top 10% most sustainable companies in each industry.
Finally, we generated strong free cash flow of $1.4 billion and ended the year with $3 billion of cash on hand, even after the retirement of $685 million of long-term debt in 2021.
Next, let me share a few highlights from our fourth quarter performance.
Total company revenue increased 11%, and operating income grew 20% sequentially.
Our completion and production division revenue increased 10% sequentially, and operating income increased 8%, with completion tool sales showing the highest third to fourth quarter improvement in the last 15 years.
Equally important, our current completion tool order book has more than doubled from a year ago, signaling strong growth and profitability again in 2022.
Our drilling and evaluation division grew revenue 11%, which outperformed the global rig count growth for the quarter and delivered over 300 basis points of sequential margin improvement.
International and North America revenue grew 11% and 10%, respectively, due to strong year in sales and activity increases across all regions.
Building on this strong foundation of disciplined execution, today, we announced two important strategic steps we are taking to further create value for our shareholders.
First, our board of directors increased our quarterly dividend to $0.12 per share in the first quarter of 2022.
This action reflects our confidence in Halliburton's strong cash generation capacity.
Second, in order to accelerate debt retirement and strengthen our balance sheet, we are redeeming $600 million of our $1 billion in debt maturing in 2025.
When these notes are redeemed in February, we will have retired $1.8 billion of debt since the beginning of 2020.
These steps demonstrate my confidence in our business customers, employees, and value proposition.
As I discussed with you on recent earnings calls, I expect the macro industry environment to remain supportive.
And as we saw in 2021, the international and North America markets will continue their simultaneous growth.
This is momentum that I have not seen in a long time.
With this momentum, we plan to execute our unique strategic priorities, deliver profitable growth internationally, maximize value in North America, accelerate digital and automation deployment, improve capital efficiency, and advance a sustainable energy future.
Let's discuss how we plan to do this.
First, internationally, our strategy is to deliver profitable growth.
We allocate capital to the highest-returns opportunities, which means we are selective on what we bid for and when.
Our D&E margin performance in 2021 as a demonstration of this discipline.
We continue to invest in technology, both digital and hardware, that maximizes asset value.
In 2021, we brought to market over 50 new technologies, including our iStar Intelligent Formation and Evaluation Platform and the next generation of our iCruise system for harsh drilling environments.
Our multiyear investment in drilling technologies is paying off.
And we expect to outgrow the market as international drilling activity ramps up.
We have unique international growth opportunities in specialty chemicals and artificial lift.
As Halliburton expands the international footprint of these businesses, we have a pipeline of opportunities that are longer cycle and should be margin accretive.
Halliburton's size, scale, and sophisticated supply chain and HR teams reliably execute for our customers in the face of supply shortages and labor tightness.
Second, in the structurally smaller North American market, our strategy is to maximize cash flow, and it dictates how we approach our North America business.
Strong cash flow starts with strong margins, and Halliburton's margins are the best in class.
We completed the most aggressive set of structural cost reductions in our history.
We also made significant changes to our processes that drive higher contribution margin, for example, how we perform equipment maintenance and provide engineering support.
These changes give us meaningful operating leverage as North American activity accelerates.
We consistently replace equipment as it wears out and avoid outsized recapitalization requirements.
And we have the right type of equipment.
We are the leaders in the low-emissions equipment segment.
We believe this gives us a structural pricing advantage as operators are willing to pay a premium for differentiated, more environmentally friendly solutions.
Our second-generation ZEUS electric fracturing technology is working in the field today and delivers results for a growing list of customers.
Importantly, in addition to emissions reduction, electric fracturing technology provides unprecedented operational control and precision.
For example, this makes pumping rate adjustments at least four times faster than a diesel pump, allowing us to respond to surface and subsurface changes more quickly than with a conventional frac spread and precisely execute the job design.
We expect fully electric locations to become a larger share of the market.
Halliburton has the right kit, including our ZEUS electric pumping unit, the ExpressBlend blending system, the eWinch electric wireline unit, and the electric tech command center to meet the market demand for lower-emitting fracturing operations.
We developed differentiated technologies that focus around the wellbore.
As the oil price and customer urgency increase, these technologies become more valuable to operators.
For example, our SmartFleet intelligent fracturing solution helps customers optimize fracturing performance and maximize production.
Several large operators will have SmartFleet working on multi-pad completion programs this year.
Additionally, SmartFleet delivers fully automated frac operations, which ensures more consistent fracture placement on every stage, improves cluster uniformity, and manages offset frac hits.
Finally, I want to highlight the importance of our well construction and production service lines.
They each have unique competitive advantage and technology to maximize value in North America.
Third, our strategy is to advance digitalization and automation in all aspects of our business.
Our digital investments drive higher margins through customer purchases of software, smarter tools and answer products, and cost savings for Halliburton.
Let me give you an example.
Currently, 100% of Halliburton's drilling jobs run on a cloud-based real-time system to deliver data and visualization to our customers around the world.
Close to 60% of iCruise operations are fully automated, allowing for up to a 70% reduction in headcount per rig.
Automation alleviates health and safety concerns by removing personnel from rigs, accelerates service delivery improvements, and reduces the environmental footprint of oil and gas operations.
Our fourth strategic priority is to drive capital efficiency across the balance sheet.
This positions Halliburton to generate industry-leading returns and strong free cash flow as markets grow.
We will optimize the working capital required to grow our business and maintain our capex in the range of 5% to 6% of revenue.
Our business thrives in this range because of our research and development efforts and process changes.
These allow us to build tools cheaper, lengthen their run life, and move assets quicker to where they make the most money.
Our final strategic priority is to advance a sustainable energy future.
Our clean energy accelerator, Halliburton Labs, continues to add new participants.
We help these early stage companies achieve important scaling milestones and significantly increase their enterprise value.
Through Halliburton Labs, we are actively participating in the clean energy space without committing shareholder capital.
Halliburton will evolve as energy evolves.
And we will add to our already expanding opportunities to participate as clean energy value chains mature.
However, we will do so consistent with our capital allocation strategy and mindful of our commitment to deliver industry-leading returns and free cash flow generation.
We will proceed with patience, discipline, and resolve.
Now, let's review our fourth quarter 2021 performance and expectations for 2022.
As OPEC Plus spare capacity returns to normalized levels this year, we believe sufficient pent-up oil demand will support a call on both international and U.S. production, and lead to increased activity.
International activity accelerated in most markets in the second half of the year and finished strong in the fourth quarter with a 23% rig count increase year on year.
All Halliburton regions grew revenue, led by Asia-Pacific, the Middle East, and Africa, with both of our divisions contributing to the revenue and margin expansion.
I'm excited about our future international growth.
Despite typical first quarter seasonality, we're starting 2022 a lot higher than where we entered 2021.
I expect our customers international spend to increase by mid-teens this year.
We anticipate projects in the Middle East, Russia, and Latin America to attract the most investment, with activity increases in Africa and Europe limited to a few markets.
Asset owners are eager to reverse base production declines caused by multiple years of underinvestment.
We expect that operators will focus on shorter-cycle production opportunities to meet increasing oil demand.
This disproportionately benefits Halliburton as these short-cycle barrels require higher service intensity and spending directly focused on the wellbore as opposed to long-cycle infrastructure investments.
In 2022, we expect to deliver steady, profitable growth across the international markets.
Our tender pipeline is strong.
We anticipate higher utilization for existing equipment in busy markets like the Middle East, Russia, and Latin America.
We plan to allocate our capital dollars to the opportunities that generate the highest return.
Given the tool tightness that exists today in some product lines and geographies, we intend to strategically reallocate assets to drive improved utilization and returns.
A tightening market focuses our ongoing pricing discussions with customers.
We see pricing traction on new work and contract renewals, including integrated contracts.
Additionally, we have introduced pay-for-performance models, negotiated favorable terms and conditions, and applied price escalation clauses.
While large tenders remain competitive, we are consistent with our strategy to pursue profitable growth.
Turning to North America.
In 2021, the recovery in North America was faster and more pronounced than in the international markets.
In the fourth quarter, U.S. land rig count increased 84% year on year, and drilling activity outpaced completions as operators prepared well inventory for 2022 programs.
Completed stage count growth moderated slightly due to the holidays, sand supply tightness, and lower-efficiency levels typically experienced in the winter months.
In the fourth quarter, we finished the planned upgrade of all fracturing fleets to the next-generation fluid end technology that extends the life of our equipment and helps reduce maintenance cost.
We expect a busy 2022 in North America.
Given a strong commodity price environment, we anticipate North America customer spending to grow more than 25% year on year.
We believe the highest increase will come from private operators.
Public E&Ps will continue to prioritize returns while delivering production into a supportive market.
In North America, Halliburton uniquely benefits as the largest oilfield services provider in the largest oilfield services market in the world.
We anticipate solid net pricing gains in North America throughout 2022.
The North America completions market is approaching 90% utilization, and Halliburton is sold out.
Pricing for our fracturing fleets is moving higher across the board, both for our market-leading low-emissions equipment and our Tier 4 diesel fleets.
As a result, we expect to see over 30% incremental than our hydraulic fracturing business in the first quarter.
Anticipated demand growth for equipment provides a runway for us to increase pricing throughout the year.
We expect some marketwide operational efficiencies afforded by completing a backlog of DUCs in 2021 to reverse as frac fleets return to the usual mode of following drilling rigs.
This will further increase the call on equipment as operators add rigs throughout the year.
Finally, during the tendering season, we secured net pricing increases across several different non frac product service lines: drilling, cementing, fluids, drill bits, and artificial lift.
As activity accelerates, the market is seeing tightness related to trucking, labor, sand, and other inputs.
While we pass these increased costs on to operators, Halliburton has effective solutions that minimize the operational impact of this tightness and provide reliable execution for our customers.
As an example, in 2021, we expanded our collaboration with Vorto and now benefit from 5F, the largest integrated transportation platform in the oil and gas industry.
This platform has several thousand drivers, hundreds of carriers, and a chain of asset-managed yards.
It allows us to effectively manage trucking inflation and availability constraints and significantly reduce logistics-related, nonproductive time.
Our human resources team and systems effectively mitigate local labor tightness.
We recruit nationally and hire, train, and manage a commuter workforce that makes up to 80% of our personnel in some areas.
There is no doubt, the much-anticipated multiyear upcycle is now underway.
North America production growth remains capped by operators' capital discipline, while meaningful international production growth is challenged by years of underinvestment.
Energy demand has proven its resilience, fueled by pent-up economic growth and a global desire to return to normalcy.
This is a fantastic set of conditions for Halliburton.
In a strong commodity price environment with limited production growth options, operators turn to short-cycle barrels and increase spend around the wellbore.
Our value proposition works.
We have the right strategies for both international and North America markets.
We are leaders in digital and automation, and we drive capital efficiency while advancing a sustainable energy future.
I fully expect that Halliburton will accelerate cash flow generation, strengthen our balance sheet, and increase cash returns to shareholders in this upcycle.
Let me begin with a summary of our fourth quarter results compared to the third quarter of 2021.
Total company revenue for the quarter was $4.3 billion, an increase of 11%.
Operating income was $550 million, a 20% increase compared to the adjusted operating income of $458 million in the third quarter.
These results were primarily driven by increased global drilling activity and end-of-year product and software sales.
Now, let me discuss our division results in a little more detail.
Starting with our completion and production division, revenue was $2.4 billion, an increase of 10%, while operating income was $347 million, or an 8% increase.
These results were primarily driven by higher completion tool sales globally, as well as increased pressure pumping services in North America land and the Middle East Asia region.
These improvements were partially offset by reduced stimulation activity in Latin America, Canada, and the Gulf of Mexico; lower pipeline services in Europe, Africa, CIS, and Asia; reduced well intervention services in Brazil; and decreased artificial lift activity in North America land.
In our drilling and evaluation division, revenue was $1.9 billion, an increase of 11%, while operating income was $269 million, or a 45% increase.
These results were due to increased drilling-related services globally, wireline sales in Guyana, improved project management activity in Ecuador and India, increased wireline activity in the Middle East Asia region, and higher software sales in Latin America and Middle East Asia.
Partially offsetting these increases were decreased project management activity and testing services in Mexico, as well as lower drilling-related activity in Russia.
Moving on to our geographic results.
In North America, revenue increased 10%.
This increase was primarily driven by higher pressure pumping activity and drilling-related services in North America land, in addition to higher completion tool sales and fluid services in the Gulf of Mexico.
These increases were partially offset by a reduced stimulation activity in Canada and the Gulf of Mexico, coupled with reduced artificial lift activity in North America land.
Turning to Latin America.
Revenue increased 7% sequentially.
This improvement was driven by higher project management activity in Ecuador, increased drilling-related services in Mexico, increased activity across multiple product service lines in Brazil, wireline sales in Guyana, and higher activity across multiple product service lines in Colombia.
These increases were partially offset by reduced project management and simulation activity and testing services in Mexico.
In Europe, Africa, CIS, revenue increased 8% sequentially.
These results were partially driven by higher software and completion tools sales across the region, improved activity across multiple product service lines in Norway and Egypt, and increased well control activity in Nigeria.
These improvements were partially offset by a reduced activity in multiple product service lines in Russia, reduced pipeline services and well construction activity in the United Kingdom, and decreased stimulation activity in the Congo.
In the Middle East Asia region, revenue increased 16%, resulting from higher completion tool sales and wireline activity across the region, improved well construction services in Saudi Arabia and Oman, higher software sales in Kuwait and China, improved project management activity in India, and increased stimulation activity throughout Asia.
These increases were partially offset by reduced pipeline services in Asia, along with lower activity across multiple product service lines in Vietnam.
Now, I'd like to address some additional financial items.
In the fourth quarter, our corporate and other expense totaled $66 million, which was slightly higher than expected due to an increase in legal reserves.
For the first quarter, we expect our corporate expense to be about $60 million.
Net interest expense for the quarter was $108 million, slightly lower than anticipated due to higher interest income from our cash balance.
Today, we announced our decision to redeem $600 million of the 2025 senior notes using cash on hand.
This action will reduce future cash interest expense and reflects our desire to continue reducing debt balances.
As a result of the debt retirement in late February, our net interest expense should remain roughly flat in the first quarter.
During the quarter, we recognized a noncash gain of approximately $500 million due to the partial release of a valuation allowance on our deferred tax assets.
This reversal is based on the improved market conditions and reflects our increased expectation to utilize these deferred tax assets going forward.
Our normalized effective tax rate for the fourth quarter came in at approximately 23%.
Based on our anticipated geographic earnings mix, we expect our 2022 first quarter effective tax rate to be approximately the same.
Capital expenditures for the quarter were $316 million, with our 2021 full year capex totaling approximately $800 million.
In 2022, we intend to increase our capital expenditures to approximately $1 billion while remaining within our target of 5% to 6% of revenue.
We believe that this level of spend will equip us well to execute on our strategic priorities and take advantage of the accelerating market recovery.
Turning to cash flow, we generated nearly $700 million of cash from operations during the fourth quarter and delivered approximately $1.4 billion of free cash flow for the full year.
As a result, we ended the year with approximately $3 billion in cash.
I've spoken before about our ability to concurrently reduce debt and increase the return of cash to shareholders.
And today, we put that into action.
This is a great start to a longer-term goal of returning more cash to shareholders.
Now, let me provide you with some comments on how we see the first quarter playing out.
As is typical, our results will be subject to weather-related seasonality and the roll-off of year-end product sales, which will mostly impact our international and Gulf of Mexico businesses.
However, we expect pricing recovery in North America to help offset these dynamics.
As a result, in our completion and production division, we anticipate sequential revenue and margins to be essentially flat to the fourth quarter.
In our drilling and evaluation division, we expect revenue to decrease in the mid-single digits sequentially, while margins are expected to be flat to down 50 basis points.
To summarize our discussion today, we see customer urgency and demand for our services increasing internationally and in North America.
We expect our strong international business to continue its profitable growth as activity ramps up throughout the year.
In the critical North America market, we expect our business to grow and improve margins.
We prioritize our investments to the highest returns opportunities and remain committed to capital efficiency.
We continue to play a role in advancing cleaner and more affordable energy solutions.
In 2022, I expect Halliburton to deliver margin expansion, industry-leading returns, and solid free cash flow.

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q4 revenue $4.3 billion.

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