Halliburton Company
Q2 2015 Earnings Call Transcript

Published: 20 Jul 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Halliburton Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kelly Youngblood, Halliburton's Vice President of Investor Relations. Sir, you may begin.

[Kelly Youngblood:]

Good morning, and welcome to the Halliburton Second Quarter 2015 Conference Call. Today's call is being webcast and a replay will be available on Halliburton's website for seven days. Joining me today are Dave Lesar, CEO; Christian Garcia, acting CFO; and Jeff Miller, President. Mark McCollum, Chief Integration Officer, will also join us during the question-and-answer portion of the call. During our prepared remarks, Dave will provide an update on the pending Baker Hughes transaction. However, due to ongoing discussions, we will not be taking any questions today related to regulatory matters. Some of our comments today 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, 2014, Form 10-Q for the quarter ended March 31, 2015, 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 include non-GAAP financial measures. Unless otherwise noted in our discussion today, we will be excluding the impact of these items. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our second quarter press release, which can be found on our website. We had several moving pieces this quarter, so let me help you walk through the numbers. As announced in our press release, our adjusted earnings per share for the quarter was $0.44, excluding restructuring costs of $0.30 and acquisition related costs of $0.08. However, as required by Generally Accepted Accounting Principles, included in our results was a $0.06 benefit related to the cessation of depreciation expense associated with the assets we are currently marketing in anticipation of the Baker Hughes acquisition. Excluding the depreciation benefit would have resulted in earnings per share for the quarter of $0.38. Going forward, the benefit associated with our assets held for sale should be factored in to your financial models as this is the only quarter that we intend to disclose it separately. Now, I will turn the call over to Dave.

[David J. Lesar:]

Thank you, Kelly, and good morning to everyone. The services industry obviously experienced another challenging quarter with lower activity levels and widespread pricing pressures across the globe as our customers continue to respond to the impact of reduced commodity prices. Considering the difficult headwinds that worked against us, I am very pleased with our overall financial results for the second quarter. Now, let me cover some headlines. First, total company revenue of $5.9 billion declined 16% sequentially compared to a 26% decline in the worldwide rig count. I'm also very pleased with our Eastern Hemisphere margin expansion, which once again outpaced our primary competitor. We generated nearly $1.2 billion in operating cash flow. Operating income declined as a result of lower activity levels exacerbated by pricing (04

[Christian A. Garcia:]

Thanks, Dave, and good morning, everyone. During the second quarter, we announced our decision to divest our Drill Bits and Drilling, MWD/LWD businesses. These businesses were classified as assets held for sale in the second quarter, and we ceased the associated depreciation and amortization for these assets, resulting in an approximate $0.06 benefit to the quarter. We've included a table in our earnings release quantifying the second quarter profit uplift by geography. To provide better transparency of our current operational trends, the sequential comparisons in my comments today have been adjusted to exclude the special items indicated in our earnings release, as well as the benefit of the lower depreciation, meaning both the first and second quarter results reflect the full depreciation burden in order to have an apples-to-apples comparison. Now, let me provide a comparison of our second quarter results to the first quarter of 2015. Total company revenue of $5.9 billion represented a 16% decline, while operating income declined 18% to $570 million. North America led the decline as a result of lower activity levels and continued pricing pressure across all of our product lines. In the Eastern Hemisphere, second quarter revenue declined by 3%, while operating income increased 17%, representing a 300 basis point margin improvement from the first quarter levels despite activity and pricing headwinds. In the Middle East/Asia region, revenue declined by 5% while operating income showed a modest improvement. Lower activity levels across the Asia-Pacific markets were offset by improved profitability in Iraq, Kuwait and the UAE. We are pleased with the progress of operations in Iraq where margins reached double digits for the first time, which we expect to sustain for the full year. Turning to Europe/Africa/CIS, we saw second quarter revenue come in flat with operating income increasing by 69%. Seasonal activity improvement's in Eurasia and Norway, along with higher stimulation activity and Completion Tools sales in both Algeria and Angola, drove the improvement for the quarter, offsetting weaker activity levels in the UK and Egypt. Latin America revenue and operating income declined by 19% and 21%, respectively, driven by Venezuela, primarily due to the negative currency impact of the new exchange rate. Partially offsetting this decline was improved profitability in Brazil resulting from the recently retendered Directional Drilling contract. Moving to North America, revenue and operating income declined 25% and 59%, respectively, relative to a 40% reduction in the North America rig count. Lower customer budgets translated into additional reductions in activity levels throughout the second quarter, accompanied by further significant price reductions across all product lines. Our decrementals in the second quarter were 19%, about half of what we experienced in the second quarter of 2009. During the second quarter, we took additional actions to adjust our cost structure due to the continued decline in global activity levels. As a result, we incurred an additional after-tax restructuring charge of $258 million in the second quarter consisting primarily of severance-related costs and asset write-offs. Since the beginning of the year, we've now reduced our global head count by over 16%. We continue to evaluate our operations and will make further adjustments as required to adjust to market conditions. Our Corporate and Other expense totaled $17 million for the quarter. We estimate that our corporate expenses for the third quarter will be approximately $75 million, and this will be the new quarterly run rate for the remainder of 2015. Our effective tax rate for the second quarter came in at 26%, and is expected to be between 26% and 27% for the remainder of the year. We continue to focus on cash flow generation. And given the continued decline in activity levels, we are reducing our capital spend for the year by another $200 million to $2.6 billion, representing a 21% year-over-year decline. Manufacturing our own equipment provides us with the utmost flexibility to adjust our capital spend based on our visibility of the market. Finally, let me give you some comments on our third quarter operations outlook. My guidance commentary will include the benefit of our lower depreciation and amortization run rate from assets held for sale. Starting with the Eastern Hemisphere outlook, we expect to see a full quarter impact of price reductions, which will affect our third quarter results. We currently expect a low to mid single-digit decline in sequential revenues with margins declining modestly into the upper teens. For Latin America, we also anticipate a modest decline in the third quarter for both revenues and margins. In North America, if we extrapolate the current rig count forward, it suggests that the average rig count for the third quarter should decline by at least 5% compared to the prior quarter. This, in combination with the full quarter impact of lower pricing, leads us to believe that revenues and margins in the third quarter will be under pressure. This pattern is consistent with previous cycles where we typically see at least a one quarter lag when the market is transitioning towards the bottom. Based on our visibility today, we're currently expecting a low single-digit decline in sequential revenues with margins also drifting modestly lower. Now, I'll turn the call over to Jeff for the operational update. Jeff?

[Jeffrey A. Miller:]

Thanks, Christian, and good morning. I'd like to start by congratulating our Eastern and Western Hemisphere operations teams for delivering solid results in a very difficult market. We are the execution company and our guys are flat out executing right now. Internationally, we continue to make progress with our mature field strategy. During the quarter, we completed a successful infield drilling program in Malaysia, while mobilizing for projects in Iraq and Russia. In Mexico, we completed drilling the first well using rigs from our joint venture with Trinidad Drilling, setting a new drilling record for South Mexico Mesozoic basin. We're seeing strong interest from our clients tendering new activity, and the global pipeline of opportunities that we're evaluating continues to be in excess of $35 billion. The deepwater economics were challenged in $100 a barrel and are clearly challenged in the current commodity price environment, which is precisely why we are focused on technology that both delivers better production and reduces the structural cost of drilling wells. This generally means removing complete activities from the work stream. A terrific example of this is how Landmark's DecisionSpace software allows clients to reduce drilling days by integrating geological data with well construction design. In a recent deepwater project, this integration reduced drilling time by 15 days by eliminating one entire directional build phase. In another case, the President of another large client was quoted at a recent conference saying that his company reduced its seismic survey data analysis time by 80% through working with Landmark. The point is that Landmark is making a meaningful contribution to our strategy to lower the cost per barrel of oil equivalent for our clients by eliminating activities and reducing structural costs, while also delivering more productive wells. Another example of technology driving efficiency was the delivery of three Lower Tertiary completions in the Gulf of Mexico using our Enhanced Single-Trip Multizone Packer (sic) [FracPac] (22

[David J. Lesar:]

Thanks, Jeff. To sum things up, this is a damn tough market, one of the toughest ones that I have ever been through. And I don't believe anyone on the call can accurately predict when commodity prices will rebound and rig counts will recover in the U.S. or the international markets, and neither can I. What I do believe is that when the recovery occurs, North America will offer the greatest upside and that Halliburton will be the best positioned to lead the way. We are pleased with the progress of the proposed Baker Hughes acquisition and are working diligently to close this transaction before the end of the year. Looking ahead, whatever shape you think the recovery will take, we have the products, the technology and the management expertise to outperform the market. We have demonstrated this during the previous cycles and have no reason to believe that this cycle will be any different. As we have said, our customers are smart, responsive and adaptable, and we are already seeing that by working together, we can figure out a way to have both of us earn returns for our shareholders even in this challenged commodity market. With that, let's open it up for questions.

[Operator:]

Thank you. And your first question comes from James West from Evercore ISI. Your line is now open. Please go ahead.

[James C. West:]

Hey, good morning, guys.

[David J. Lesar:]

Morning.

[Jeffrey A. Miller:]

Good morning.

[James C. West:]

It looks like contrary to, I guess, popular belief on Friday, you guys did not have to work all weekend to change what you were going to say today, so congratulations on a good quarter.

[David J. Lesar:]

Yeah, thanks, James. Yeah, I had a stress-free weekend, that's for sure.

[James C. West:]

Good to hear. A quick question on the North American margins. So, the 300 basis points to 400 basis points of extra cost that you're holding on to right now, is that just Halliburton related costs or are you actually adding to your cost structure in anticipation of the Baker Hughes transaction? And if so, will you have all the railcars to handle those facilities, et cetera, that you need once the transaction closes later this year?

[Jeffrey A. Miller:]

Yeah, thanks, James. This is Jeff. The – I mean, we have the best operating platform in North America. So when we look at that and anticipate adding a second story basically to the house, our management structure, the operating basis that we have, the logistics infrastructure, including things like Battle Red, and our business development we know are critical to delivering the synergies and delivering them quickly. So as we manage our business, we continue to invest in those things that support that sort of in spite of the market. So the answer is managing our investment in new things, but obviously retaining those things that we know are important.

[James C. West:]

Okay. Okay. Fair enough, Jeff. And another question, a follow-up for me related to that one. On the synergy number for the Baker Hughes proposed transaction, it sounds like you're very confident still in that $2 billion number. However, both companies have taken cost reduction efforts. Is that – I mean, are you synthetically raising that synergy number then if you're already – both companies are already going through cost cutting right now?

[Jeffrey A. Miller:]

Yeah, I mean, that's a way to look at it, but I think what's most important to take away is that the – while market adjustments are required, we want to be crystal clear that the current activities do not impact our view and confidence in the $2 billion worth of post-acquisition synergies.

[James C. West:]

Got it. Thanks, Jeff.

[Operator:]

Thank you. Our next question comes from Angie Sedita from UBS. Your line is now open. Please go ahead.

[Angie M. Sedita:]

Thanks, guys. Indeed, a solid quarter, particularly given the market. I guess to (35

[Jeffrey A. Miller:]

Yeah, thanks, Angie. I mean, 2016 looks better than 2015, but I'd like to reframe your question as how really does attrition play out. And for example, I was just out in the Southern region looking up. When I travel, I look at our locations and competitor locations, and I see more equipment than required showing up on competitor locations to compensate for the lack of maintenance and the lack of capital investment. In some cases, two times as much is what would be required. Now, that's attrition in action. And capacity can tighten very quickly, and we saw that in 2014, how quickly attrition – or actually, capacity tightened. So, I mean, that's why we're so committed to Frac of the Future. I mean, it clearly performs in the downturn and it's even more valuable as the industry recovers.

[Angie M. Sedita:]

Okay. That's helpful. And then I was actually kind of surprised on the BlackRock side, the transaction. Can you give us a little detail there, further details on how that will play out, the logistics of the arrangement and just some color?

[Jeffrey A. Miller:]

Well, yeah. I mean, what we see is this is a foundation for growth, and demonstrates our belief that the market grows. And it's clear that the technology enables returns. It also lays the groundwork for us to move quickly at scale. And the short answer is it's set up around a three-year sort of window, I mean, it provides a lot of flexibility for us to act quickly.

[Operator:]

Thank you. Your next question comes from Jud Bailey from Wells Fargo. Your line is now open. Please go ahead.

[Judson E. Bailey:]

Thanks. Good morning. Dave, in your prepared comments, you noticed that service pricing is generally unsustainable across all product lines. I was wondering, given the potential for attrition in the industry and given how low pricing is, how do you think – do think pricing can normalize back up to a more reasonable level before we fully utilize the fleet, given the amount of stacked capacity? Or how do you see that first step in pricing playing out given how depressed pricing is and given how much idle capacity there is? Should it normalize a little bit quicker because there is so much stacked capacity and people are investing in their fleets, or is going to take just as long as it has also prior troughs and up cycles?

[David J. Lesar:]

No, I think the – certainly, it's not going to pop back up to where it was even a year ago today. It'll normalize in an incremental fashion, and it's going to be a combination essentially of pricing increases, equalization or equilibrium in terms of equipment across the board, and also allowing the input costs to continue to catch up with where we are. So it's going to be a lot of blocking and tackling, and it's just going to go step-by-step.

[Judson E. Bailey:]

Okay. Thank you for that. And then my follow-up is on international pricing. Christian, you noted in your prepared comments that taking into account you have a full quarter of lower pricing rolling through, how should we think about in the fourth quarter, have you already adjusted? Are you already seeing a lot of the new pricing rolling through the P&L? Or are we going to have more of an effect as more contracts reprice in the fourth quarter as well?

[Christian A. Garcia:]

Jud, the fourth quarter, it's still early to call what the fourth quarter will look like, but if you think about it, we will still continue to have pricing pressure impacting the fourth quarter. However, we would have the usual seasonal uptick that we experienced on the – during the end of the year.

[Judson E. Bailey:]

Okay. Is it too early to see if you think those can kind of offset each other by the fourth quarter?

[Christian A. Garcia:]

At this point, we think that the seasonal uptick will offset the – any sort of additional pricing impact that we might have in the fourth quarter.

[Operator:]

Thank you. And your next question comes from Bill Herbert from Simmons & Company. Your line is now open. Please go ahead.

[William A. Herbert:]

Thanks. Good morning. I just wanted to drill down a little bit further on BlackRock and also kind of broaden the discussion with regard to business models. So with regard to BlackRock, what are they bringing to you that you can't do on your own? Is it simply balance sheet? And then moreover, what exactly are you sort of purporting to do with regard to pursuing the refracs? Are you underwriting the cost of the refracs? Who are you targeting, et cetera? And then secondly, more broadly speaking, in terms of that – the evolution of your business model, are you willing to put your balance sheet to work and make use of your robust holistic value proposition with regard to underwriting the cost of drilling and completing a well, even a new well?

[David J. Lesar:]

Yeah, Bill, (41

[William A. Herbert:]

Okay. And who are – what type of customer are you targeting? I mean, it's not, I would assume, just the E&Ps under duress, but who else are we targeting?

[David J. Lesar:]

No, we're not targeting marginal assets here. We're targeting good sets of assets that for whatever reasons are not being able to get accessed by our customer base today.

[Operator:]

Thank you. And your next question comes from Scott Gruber from Citigroup. Your line is now open. Please go ahead.

[Scott A. Gruber:]

Yes, I want to reiterate great quarter, especially with regard to those international profit margins. I'm curious as to your opinion on when the domestic industry could see some friction in rehiring labor if this recovery gains momentum. I realize that you're in a great position given that you're one of the very few companies that actually has the ability to carry extra labor and extra costs today. So the question for you is really, at what rig count do you think you could see competitors become more aggressive in trying to steal your employees simply because there's a dearth of quality labor on the sidelines?

[Jeffrey A. Miller:]

Yeah, I mean, that's probably less of a rig count question, more of a capacity question as things start to tighten. And I think we've demonstrated through the last cycle, our ability to ramp up very quickly with people. So not particularly concerned about that.

[Scott A. Gruber:]

For the industry, more broadly though, do you think it would happen this cycle at a lower rig count relative to the past, because – given the service intensity trends?

[Jeffrey A. Miller:]

Well, I think tightness could occur at a lower rig count most certainly, and I think that the lack of investment in the industry today could drive that tightness at a lower rig count.

[Scott A. Gruber:]

And do you think the equipment burn rate is going to be an issue before labor or vice versa?

[Jeffrey A. Miller:]

I think the equipment precedes labor.

[Scott A. Gruber:]

Got it. Thanks.

[Operator:]

Thank you. And your next question comes from Kurt Hallead from RBC Capital Markets. Your line is now open. Please go ahead.

[Kurt Hallead:]

Yes. Good morning. Just a follow-up to the prior question there. In one of your earlier comments, you mentioned that industry capacity for frac are fully (44

[Jeffrey A. Miller:]

I think it's – Kurt, this is Jeff. I mean, it's – If you think about attrition, it's happening all of the time, but it's not necessarily apparent all of the time. And by that, I mean it's – you don't see it until there's a call on the equipment, and we really saw this last time. So as competitors consume more equipment on location to do the work, you don't feel the tightness. But as that equipment is called on for even a little bit of incremental activity, that's when it's seen. So recalculating the 50% overhang is difficult to do until there's a call on it, but we're certain that it's happening today.

[Kurt Hallead:]

Okay. And then for my follow-up, Christian was mentioning some continued pricing pressures or lingering effects of pricing pressures going out into the fourth quarter. Just wondered if you might be able to give us some general sense, are the pricing pressures going to be roughly equivalent in North America and international? I would be under the impression that the pricing elements would have largely abated during the third quarter if rig count's going to stabilize. Just give us some more color on pricing dynamics on a regional basis, that'd be helpful.

[Jeffrey A. Miller:]

Well, I think pricing internationally, all the customers ask for discounts, but the reality is there's not much to give. We never recovered from the 2008 cycle internationally. And so the better discussion there – and it moves to this discussion – is around how to deliver better efficiency and reduce costs, and that leverages precisely what we do at Halliburton. North America, as we've said, we see the price decline rate, maybe a description, decelerating, but nevertheless, still some pressure as we move through the quarter.

[Operator:]

Thank you. And your next question comes from Jeff Tillery from Tudor, Pickering & Company. Your line is now open. Please go ahead.

[Jeff Tillery:]

Hi. Good morning. I guess I'm curious to hear how the last few weeks have impacted the customer discussions, whether it'd be – I mean, I imagine it's mostly focused on North America, but it did feel like completion activity was finding a floor and then the oil price rug gets pulled out from everyone. So I'm just curious how the – your view around the third quarter has evolved over the last three weeks.

[Jeffrey A. Miller:]

Well, over the last three weeks, it hasn't changed that much. I mean, we think about the rig count, it has puts and takes. And so it was seeing some improvement, but then Friday, I suppose those gains were erased. So I would describe where we are today as scraping along a bottom. And scraping along a bottom means that we don't anticipate dramatic change of any sort, certainly over the very near term.

[Jeff Tillery:]

My follow-up just on the profit pressures in North America. Should we expect Halliburton's North American business in Q3 to stay profitable?

[Jeffrey A. Miller:]

Most certainly.

[Christian A. Garcia:]

Right. So, obviously, there's still uncertainty on the depth and length of the cycle. However, we are doing everything possible to make sure that our North America will be profitable.

[Jeff Tillery:]

Okay. Thank you, all.

[Operator:]

Thank you. And our next question comes from Dan Boyd. Your line is now open. Please go ahead.

[Daniel J. Boyd:]

Hi. Thanks. So, a lot of focus on the attrition rate in pumping this call, but how about on the demand side? You mentioned that you're seeing the average job size increase significantly year-over-year. How should we think about sort of the pressure pumping intensity of the rig count? Is there a rule of thumb that we should think about? And how is that changing?

[Jeffrey A. Miller:]

Well, the demand for equipment and the – the increasing demand on equipment is really a function of the increasing job sizes. And so we see more and more of the capital spend on completions, and I don't see anything that dials that back. Obviously, technology that we deliver is focused on making better wells sort of within the current job sizes. So I don't think job size growth is not infinite because it starts to have an impact on neighboring wells and other things, but the quality of the fracs will continue to improve.

[Daniel J. Boyd:]

I guess, said another way though, if you think about the job sizes increasing, is there something that we could tie to a rig count? I know the rule of thumb used to be sort of four or five rigs per pressure pumping crew. Is it something lower than that today that you're experiencing in your fleet? Or are the increased efficiencies that you're able to realize offsetting that?

[Jeffrey A. Miller:]

Well, I would think more in terms of well count than rig count today driving completions. And from our perspective, the basis for the Q10 and Frac of the Future is for us to be able to do that, which we are doing with substantially less capital on location. So that's clearly part of our competitive advantage.

[David J. Lesar:]

Yeah, and I would say just one additional thing is although the rig count has been decimated this year, the rigs that are running today, keep in mind, are the most efficient rigs that are out there. And therefore, they are drilling more wells sort of per rig than we've ever had in the past. So I think the fixation on rig count, yes, it's important to the industry, but I think well count is another thing that folks need to look at and concentrate more on, because it's the well count that ultimately drives how much completion work is done.

[Operator:]

Thank you. And your next question comes from Brad Handler from Jefferies. Your line is now open. Please go ahead.

[Bradley P. Handler:]

Thanks. Hey, guys. Maybe first question relating to the international activity. There were some references, maybe several references particularly in Europe/CIS/Africa, related to product sales. Should we read anything into that? Is it – was there a bit of catch-up from buyers that weren't buying, say, in the fourth quarter of last year in the downturn? But was there some sort of truing up to a normalized level? And I guess what I'm hinting at is perhaps there's some falloff as guys have caught up a little bit in their product purchases – as your customers have caught up in their product purchases. Does that undermine the third quarter outlook at all?

[David J. Lesar:]

No. I think what we're trying to say, service work is fairly consistent and fairly predictable, product sales sort of come lumpy all the time. And so when you get a product sale, it might push your margin and revenues up or down, but I wouldn't – other than sort of a fourth quarter push around Landmark and things like that, product sales do happen throughout the year. We just like to be transparent and point out when they've helped. But they're going to help nearly every quarter. But it just depends on sort of what the location is, what the geography is and perhaps, in some cases, what the product line is.

[Bradley P. Handler:]

Okay. That's helpful. Unrelated follow-up, maybe it's my – I'm not that strong in the accounting side and I don't want this to devolve to an accounting lesson, but I was a little surprised to see the stoppage of depreciation without things getting pulled into some sort of a discontinued state as the assets were held for sale. Does that happen or what's the trigger point for the businesses to be pulled out and put into a discontinued state?

[Christian A. Garcia:]

Right. So, Brad, obviously, don't want just an accounting lesson, but accounting standards...

[Bradley P. Handler:]

Right.

[Christian A. Garcia:]

...call for a business that planned to be divested to be classified as assets held for sale when they meet certain criteria, and we met those, those are – there are six conditions. To be reported as a discontinued operation, well, you have to put the results of that business in a separate line item, that business needs to represent a strategic shift by the company, and that's what the accounting standards require. And clearly, this is not the case in this situation because we will continue to be in those businesses for drilling services and drill bits. So our treatment is consistent with other merger situations that require a sale of overlapping businesses.

[Operator:]

Thank you. And your next question comes from Rob Mackenzie from IBERIA Capital. Your line is now open. Please go ahead.

[Rob J. MacKenzie:]

Thank you. A quick question for you. Coming back to the North American margin impact, commenting about 300 basis points, 400 basis points of excess cost you're bearing, I guess I'm a little bit curious with your viewpoint for a muted recovery and uncertainty well into 2016. Why carry so much incremental cost here?

[David J. Lesar:]

Well, it's pretty simple. I mean, I think we have a superior delivery platform in North America. We know where we are going to be adding a tremendous number of people and assets to it, and in my view, it'd be crazy to get rid of it. If you look historically, the cost to carry something ultimately outweighs the cost to have to replace it, go out and get people, retrain those people, rebuild your infrastructure and all of that. So it's a decision I made. It's on me if you disagree with it, but I think that it's easily defendable and I think it's certainly the way we need to go here, and I'd tell you, it's going to pay off once we get this deal done.

[Rob J. MacKenzie:]

Great. Thanks, Dave. And then on the international margin (54

[Jeffrey A. Miller:]

Yes. The – I mean, the Eastern Hemisphere team and international group's absolutely executing, and executing on the strategy we laid out, which is to manage costs over the near term, and they have done that, taking out quite a bit of costs, while at the same time, looking through the cycle. And we like the contracts that we've won and we've got some very strategic wins that are continuing to go on in places like Scotland and Brazil and other places. So it's just really just execution, world-class execution in the international business.

[Christian A. Garcia:]

But if I can add to that, in terms of our outlook, our Eastern Hemisphere margins were 19% in the second quarter and we are expecting this to come down a little bit into the upper teens. This would then suggest that our margins are being sustained at a higher level than what they were in the first quarter.

[Operator:]

Thank you. At this time, I would like to turn the call back to management for closing remarks.

[Jeffrey A. Miller:]

Thanks, Danielle. And I'd like to wrap up the call with just a couple of comments. First, there's no question that this is a tough market. In markets like this, Halliburton's operational execution becomes an even more valuable source of differentiation, which was demonstrated by our second quarter results. I'm confident that our team will stay dead focused on delivering both best in class service quality, along with our long-term strategies in deepwater, unconventionals and mature fields. Secondly, we're pleased with the progress of the Baker Hughes acquisition on many fronts, including the regulatory process and the divestitures. We are confident that we can achieve the cost synergies of nearly $2 billion independent of the current market related actions by either company and are excited about closing the acquisition. We look forward to speaking with you next quarter. Danielle, please close the call.

[Operator:]

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