Halliburton Company ($HAL)

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the First Quarter 2026 Halliburton Company Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Mr. David Coleman, Senior Director of Investor Relations. Sir, please begin.

Hello, and thank you for joining the Halliburton first quarter 2026 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; Shannon Slocum, Executive Vice President and COO, and Eric Carre, Executive Vice President and CFO. Some of today's comments may include forward-looking statements that reflect 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, 2025, 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, except as required by law. 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 first quarter earnings release and in the quarterly results and presentation section of our website. Now I'll turn the call over to Jeff.

Thank you, David, and good morning, everyone. Before I get into my thoughts on the current market and Halliburton's outlook, let me begin with a few highlights from the first quarter. We delivered total company revenue of $5.4 billion and operating margin of 13%. International revenue was $3.3 billion, an increase of 3% year-over-year. North America revenue was $2.1 billion, a decrease of 4% year-over-year. During the first quarter, we generated $273 million of cash flow from operations $123 million of free cash flow and repurchased $100 million of our common stock. Now let's turn to our market outlook. To begin, I believe the situation in the Middle East will have meaningful and long-lasting implications for the global energy sector. Here's what I expect. First, energy security is no longer simply, a talking point. It demands action by every nation to ensure a reliable supply of oil and gas. I expect we will see increased investment in localized oil and gas developments and urgency to diversify sources of oil and gas for those countries without their own resources. Second, recovery of oil and gas production and inventories will not be a quick or simple process. Cumulative production deficits are in the several hundreds of millions of barrels and trending towards 1 billion. This represents several years of meaningful incremental demand to replace strategic reserves on top of what I believe will be continued structural demand growth. Big picture, this means the world is fundamentally tighter oil and gas than it was 60 days ago. In my view, that supports a durably stronger commodity environment and a far more constructive backdrop for upstream investment in oilfield services activity. I believe Halliburton will thrive in this market. We are active in all the major markets that matter with the right service lines, strategy and technology. In addition, we are the services leader in North America, which in my 30 years of experience has always been the first market to respond to price signals. With that, I'll turn the call over to Shannon.

Thanks, Jeff. Before I get into our operational results, I want to recognize our employees around the world, but especially in the Middle East. They're executing under challenging circumstances. They are staying focused on our customers and are keeping each other safe. Their fortitude and resilience represents the best of Halliburton, I want to personally thank them. Now let's turn to our International business, where our first quarter revenue was $3.3 billion. I'll start with the Middle East, where we have remained closely engaged with our clients through disruptions. Activity has been most impacted in the region's offshore markets in Qatar, UAE, Saudi Arabia and the land markets in Iraq and Kuwait. Halliburton continues to support our customers in these areas with service capability they require to navigate current conditions and resume activity, as markets recover. In the broader region, the closure of the Strait has resulted in Halliburton's use of alternative supply chain routes, which has increased logistics cost. We have also seen price increases in purchase materials and supplies related to the conflict. In my view, these are manageable disruptions as we work closely with our customers to mitigate these additional costs within the terms of our contracts and agreements. Outside Middle East, we saw better-than-expected results during the quarter, and we expect year-over-year revenue growth in the mid- to high single digits for the full year, led by Latin America. I recently returned from the region, I came away even more confident in our outlook. Activity is strong. Customer engagement is high and our growth engines are performing in several important markets. In un-conventional, YPF recently awarded Halliburton, a multibillion-dollar award for Integrated Completion Services in Argentina. This award expands our position in Argentina and represents an important milestone for Halliburton. Under this contract, we will deploy our full completions portfolio, including ZEUS electric fracturing services for the first time outside of North America. The word also includes Octiv Auto Frac, which brings electrification, automation and digital workflows to unconventional fracturing in Argentina. In drilling, we continue to build momentum with our automated offerings. We recently closed our acquisition of Sekal, a global leader in rig automation. With this acquisition, our portfolio now combines Halliburton LOGIX drilling automation, with Sekal's DrillTronics platform and services. This means Halliburton has the technology in-house to fully close the loop for automated geo-steering. This includes the bottom hole assembly, the hydraulics and now the rig itself. We worked with Sekal for several years and recently delivered this technology in offshore Guyana. Our closed-loop automation technologies delivered better-than-expected drilling times and most importantly, better reservoir contact. I am confident in the power of these technologies, working together to maximize asset value for our customers. As our drilling technology continues to advance, so does my confidence in our offshore business. Our drilling capability and collaborative model were key drivers of a recent win in Suriname's with Petronas, who selected Halliburton and Valaris for a strategic collaboration agreement to support the development of its offshore assets. The agreement brings the teams together early in the development cycle and reflects exactly the kind of close alignment that creates value for customers and for Halliburton, more broadly nI'm increasingly confident in our offshore outlook. Across markets, customers are choosing Halliburton for offshore projects because of our technology, our execution and our ability to collaborate earlier and more effectively throughout the well life cycle. We see that in Guyana. We see it in Suriname, and we see it increasingly other offshore markets around the world. To conclude on international, I am confident in our business outlook based upon the strength of our growth engines, the value of our collaborative model and the differentiation of our technology. While the Middle East remains the key near-term variable, we see real momentum across the rest of our international portfolio, and I believe Halliburton will continue to win and deliver profitable growth. Turning now to North America, where Halliburton delivered first quarter revenue of $2.1 billion. Early in the quarter, winter weather delayed services activity in the Permian and Northeast but those impacts were more than offset by stronger-than-anticipated activity for the remainder of the quarter. In a recovery in North America, there are several signposts I expect to see. Today, we are already seeing a couple of important ones. First, the frac calendar white space in the first half of the year is now gone. As we entered this year, there was a risk that completion work might slip to the right and the gaps in the calendar could widen. That is no longer a concern. Second, we have seen an uptick in inbound costs for spot work. While these calls are not for committed crews, they do suggest incremental demand is building in spot markets with smaller operators. This is the leading edge of capacity tightening. While we are in the early innings in my view the setup for North America is constructive. Premium equipment is already tightening. The commodity price is supportive and we see signs of incremental demand. As we look to the rest of the cycle, our strategy to maximize value in North America will not change. Here's how we'll approach this market. First, we're going to focus on returns, not market share, which means our priority is to improve the returns of our existing fleets before we add capacity. Clearly, restoring price to acceptable levels is a key component of this. And second, we'll deploy differentiated technology at scale that solves for customers' greatest opportunities, improving recovery with ZEUS IQ and drilling efficiency with iCruise. In summary, I am excited about North America. We see a recovery in progress. As activity grows, we believe customers will place high value on technology, efficiency and execution, which plays to Halliburton's strengths. With that, I will turn the call over to Eric to provide more details on our financial results. Eric?

Thank you, Shannon, and good morning. Our Q1 reported net income per diluted share was $0.55. Total company revenue for Q1 2026 was $5.4 billion, flat when compared to Q1 2025. Operating income was $679 million and operating margin was 13%. Our Q1 cash flow from operations was $273 million, and free cash flow was $123 million. During Q1, we repurchased $100 million of our common stock. Now turning to the segment results. In Q1, both of our divisions were impacted by the conflict in the Middle East, which resulted in an impact of approximately $0.02 to $0.03 per share. Beginning with our Completion and Production division, revenue in Q1 was $3 billion, a decrease of 3% when compared to Q1 2025. Operating income was $439 million a decrease of 17% when compared to Q1 2025 and operating income margin was 15%. These results were primarily driven by lower stimulation activity in North America and lower completion tool sales and decreased pressure pumping services in the Middle East. Partially offsetting these decreases were higher completion tool sales in the Western Hemisphere and improved pressure pumping services in Africa. In our Drilling and Evaluation division, revenue in Q1 was $2.4 billion, an increase of 4% when compared to Q1 2025. Operating income was $351 million, flat when compared to Q1 2025, and operating income margin was 15%. These results were primarily driven by higher project management activity in Latin America and increased drilling-related services in Europe and in the Western Hemisphere. Partially offsetting these increases were lower activity across multiple product service lines in the Middle East, lower [ wireline ] activity in the Eastern Hemisphere and decreased fluid services in the Gulf of America. Now let's move on to geographic results. Our Q1 International revenue increased 3% when compared to Q1 2025. Europe Africa revenue in Q1 was $858 million, an increase of 11% year-over-year. This increase was primarily driven by increased drilling-related services and higher completion tool sales in Norway and improved pressure pumping services in Angola. Middle East Asia revenue in Q1 was $1.3 billion, a decrease of 13% year-over-year. This decrease was primarily driven by conflict-related disruptions that resulted in lower activity across multiple product lines. Latin America revenue in Q1 was $1.1 billion, a 22% increase year-over-year. This increase was primarily driven by higher activity across multiple product service lines in Ecuador, the Caribbean and Brazil and improved stimulation activity in Mexico and Argentina. In North America, Q1 revenue was $2.1 billion, a 4% decrease year-over-year. This decline was primarily driven by lower stimulation activity and decrease artificial lift activity in U.S. Land and lower stimulation activity and decreased fluid services in the Gulf of America. Moving on to Other items. In Q1, our corporate and other expense was $69 million. We expect our Q2 corporate expenses to increase about $5 million. In Q1, we spent $42 million on SAP S/4 migration, which is included in our results. For Q2, we expect SAP expenses to be about $45 million. Net interest expense for the quarter was $82 million, lower than expected due to favorable interest income. For Q2, we expect net interest expense to increase about $5 million. Other net expense in Q1 was $28 million. We expect Q2 expense to be about $35 million. Our effective tax rate for Q1 was 18.5%. Based on our anticipated geographic earnings mix, we expect our Q2 and full year effective tax rate to be approximately 20%. Capital expenditure for Q1 were $192 million. For the full year 2026, we expect capital expenditures to be about $1.1 billion. Now let me provide you with comments on our expectations for Q2 2026. In the Middle East, the timing and path of a recovery to pre-conflict activity levels is unclear. In addition to lost revenue, we also expect higher costs related to supply chain logistics and fuel. We estimate the impact in the second quarter will be approximately $0.07 to $0.09 per share which is embedded in our divisional guidance. In our Completion and Production division, we anticipate sequential revenue to increase 4% to 6% and margins to improve 50 to 100 basis points. In our Drilling and Evaluation division, we expect seasonal software sales to roll off in the second quarter. As a result, we expect sequential revenue to be flat to down 2% and margins to decline 75 to 125 basis points. I will now turn the call back to Jeff.

Thanks, Eric. Here's what you should remember from today's call. The macro environment has changed in the last 60 days. I believe Halliburton will thrive in the market that we see. In North America, we already see the early signs of recovery. Outside of the Middle East, we expect our International business to grow. Our growth engines delivered significant milestones during the quarter and our collaborative value proposition is winning in the offshore market. Let's open it up for questions.

[Operator Instructions] Our first question or comment comes from the line of David Anderson from Barclays.

Obviously, the Iran conflict isn't resolved, so it's really hard to guide for the next several quarters. But I think everybody is just trying to figure out what the other side of this looks like. I realize it's early, but the global supply now a priority, kind of how does this shape your views over the next few years? And how has that really changed over the last 60 days?

Look, I think the most important change is that the supply overhang is no longer a concern. That's swept away. And demand -- structural demand remains intact. And so I think that combination sort of moves the rebalancing up closer, that's sort of done. And when I look out, I think equally important is the the view that energy security is no longer a talking point. I mean, I said that. But I mean that's going to drive activity. And so I think that change is not temporal, but that's a few years, a solid few years. So that's what's changed in the last 60 days, in my view.

And then you touched on North America. North America is kind of always the first one to see a reaction. It sounds like you're saying kind of early innings here. Shannon, you were trying to talk about some of this white space shrinking. Are you starting to see E&P customers showing signs of picking up activity? How much -- as everybody's kind of waiting on the back part of the curve to lift up, just kind of a little bit more color on kind of what you're seeing on the ground on U.S. onshore?

Yes. Thanks, Dave. The short answer is yes. We've seen a couple of really good signposts. As I said, white space for Q2 is all but gone. We've seen a lot of pull forwards. We see inbounds. We're also seeing H2 firming up as well. I think the next flip of the coin would be rig adds and some longer-term discussions on frac activity. And I think as far as investments of the smaller and the bigger operators, the bigger operators tend to invest throughout the cycle. The smaller or medium subs usually move a little quicker. But hey, I think they are looking at the front end of the curve -- at the back in the curve, but they're also looking at the front of the curve as well. We like this market. We believe being the only fully integrated service company in North America is a fantastic position for us, along with our E-fleets, ZEUS IQ and also really the demand for iCruise as well in this market. So the short answer is yes, early innings, but we like where we are.

Our next question or comment comes from the line of Arun Jayaram from JPMorgan.

Shannon, maybe I could start with you. I was wondering if you could walk us around your core international and offshore markets outside of the Middle East and perhaps elaborate on the strength in LatAm and Europe, Africa. I believe you mentioned that outside of the Middle East, you expect International revenues to grow mid-single to high single digits. I'm just wondering how that compares to your thought process maybe before the conflict?

Yes. Thanks, Arun. Yes, a lot to be excited about a lot of bright spots, Latin America leading the way. Really excited about the work we're doing the Caribbean, in particular, Guyana and Suriname, working in a very collaborative way. But Argentina is really exciting. We just announced a multiyear, multibillion first-ever deployment of [indiscernible] frac spreads in Argentina with YPF. That's going to be a really great business for us moving forward. The deepwater work as well in Brazil. But hey, if you move east outside of Middle East, the Norway market is one that we've had a real strong position in. We're very collaborative with a number of customers. We're starting to see rig adds coming towards the back half of this year, early next year. And with regard to West Africa, we're seeing some light in the tunnel, real sizable programs both in Namibia. Nigeria, we have excisable footprint in both of those places and two countries we like our contracts in. And I would just put Asia Pac just as a really resilient market for us, throughout the cycle. It's stayed busy. We expect that to continue. And yes, we expect the full year mid- to high single digits outside of Middle East. We think certainly a lot of unknowns in the Middle East, but still feel pretty good about where we are with that guide.

Great. And my follow-up is in North America, we have a bit of an unusual dynamic where we have relatively modest natural gas prices, including kind of in markets like the West Texas, which are significantly below diesel prices. One of the things about Halliburton's frac fleet is you have a lot of exposure to natural gas, kind of burning equipment E-Fleets that use natural gas as an input. But I was wondering if you could talk about opportunities to arbitrage this delta to the benefit of how shareholders in terms of arbitraging that delta in terms of pricing power?

Well, look, I think that, that just reinforces the value in our e-Fleets. And yes, clearly, an opportunity -- and look, we work that all over the time in terms of pricing and where is that going. But yes, I would describe that as an opportunity. It's certainly a benefit for operators that are consuming natural gas. And I think just to add to that, in terms of the E-fleets that we have, the ZEUS platform is proving itself such a unique solution, particularly with respect to ZEUS IQ and the ability to move on recovery that while the ability to be more economic with the gas consumption due to the arbitrage, I think the real power in the ZEUS IQ and the ZEUS platform has been what it's able to do subsurface.

Our next question or comment comes from the line of Saurabh Pant from Bank of America.

Hi Good morning Jeff, Eric, and welcome, Shannon to the call. Jeff, obviously, you had your comment on North America in the press release, you gave us a lot of good color in your prepared remarks. But I recall last quarter, we were talking about this, and you were talking how the supply side of the equation, again, this is mostly a frac comment, right, is a lot tighter than people think, and it would take just a little bit of demand coming back for pricing power to come back. How are you thinking about that right now, Jeff, Shannon, maybe you want to pitch in, right? How do we move through the remainder of '26 based on -- based on what we know right now, right, on the demand side and then the pricing power side of things?

Yes. This is Shannon here. Yes, we're seeing some, as I mentioned earlier, some really good signposts. What that is doing is driving some real constructive conversations with our operators. There's a handful of fleets that can go to work. And the way we think about it is, first is we have to address the pricing of our existing fleets, those conversations are having -- I think the next flip of the coin, longer-term programs, more rigs being added, that creates another level of constructive conversations for us. But first things first for us is focus on the fleets we have now. And it doesn't take much attrition for things to get tight and early innings, but starting to see signs of that.

Yes. I think just to follow that up, what in my view is even clearer than it was as sort of the availability of equipment in the market, and that's what those early signposts are calling out is the fact that equipment is tighter, and we're getting calls. And I think we're within a handful of fleets of sort of premium fleet, dual fuel type fleets are being absolutely sold out as an industry.

No, that's helpful color, Shannon and Jeff. I think it's very positive for the industry and for Halliburton in particular. My second question, Jeff, Shannon is on the International side of things. Obviously, like you said in the beginning, there's going to be almost a billion barrels of lost production from what's happening in the Middle East. That's bound to have profound impact. If we just focus on the international side of things, which markets, which kind of customers, operators do you think would be the first to change their behavior which regions should we expect to benefit first? I know you talked about Latin America, which has been really strong for you. And then just how would Halliburton seek to benefit from that? I know your collaborative approach has been really helpful in outperforming the market.

Yes. I just finished a bit of a tour around all the international location regions. Conversations that I'm having with customers and energies and ministers are the dependency of being down to a Strait is in their mind. Anybody that's a net import of oil is thinking about bringing forward programs and reevaluating their capital budgets. I think that's one. I also think our growth engine is really excited about where we're heading with growth engines and how we can apply that to what would be a hopefully improved drilling program in some of these locations. But Asia Pac, all of those West Africa, all those areas are really markets that we see potentially picking up with what's going on in the Strait. And I guess last to add is you're right, the collaborative model that we work under has been big for us, a lot of the areas that I mentioned earlier, we were very collaborative. We were invited in earlier, and I think that's been a big supporter of us in winning the work we have in a number of those markets.

Our next question or comment comes from the line of Steve Richardson from Evercore.

I appreciate the guidance on 2Q in terms of the EPS impact of the conflict and how it's embedded in your guidance. Could you just talk a little bit about how you thought about -- we think about the $0.02 to $0.03 that you experienced really just in the month of March, how does that roll over? What have you -- like it's a tough situation to game. So how have you kind of thought about escalation or de-escalation and the timing at which that $0.07 to $0.09 will kind of be derisked?

Yes, Steve, it's Eric. I'll take that one. So let me tell you what we saw in Q1 and what we have built in our guidance for Q2. So as you mentioned, Q1, $0.02 to $0.03, Q2 $0.07 to $0.09, again, built into the guidance that we gave. There are two major buckets of impact to our business. One is lost revenue. The second one is inflated costs primarily through logistics, fuel costs, et cetera. So the assumptions we made for the Middle East for the second quarter is a bit of our best guess it is to assume that the level of disruptions are similar to what we had when we exited Q1. We're also building a restart of some of the offshore work kind of halfway through the quarter. So that kind of is the -- what drives our $0.07 to $0.09 commentary. Now I would say as well that if the restart that we are assuming around some of the offshore operations are delayed. This could mean another impact to our business of, say, $0.03 to $0.05 potentially.

Very helpful. So if we could follow up just quickly on the Argentina contract and YPF. I mean, clearly, the situation there has changed a lot on the ground from a regulatory and aboveground situation. Can you talk to -- there's clearly other operators in the basin and also still a lot of interest in other geographies such as Australia in terms of unconventional. Can you talk about how much you view this contract as somewhat of a template or a good baseline for how Halliburton will approach some of these other unconventional jurisdictions?

Yes. Thanks. Look, this is a huge opportunity for Halliburton in Argentina, but I do believe it speaks to the maturity of that market in terms of growth. It's not mature by any means, but it's in terms of a growth trajectory, it's demonstrating what was really required for meaningful growth. By that, I mean multiple fleets over multiple years. They're building out infrastructure there in order to make frac more efficient. I mean it's going to be very competitive from a cost standpoint with the rest of the world. In addition to that, that's attracting new investors into that market, which I think are good both for the market itself in terms of developing the resource, but also speaks to what I think in view as how important Vaca Muerta is to Argentina, broadly, economically. And so all of that very positive for Argentina. And your point about this being a template is spot on because when we look around the world, we look obviously Australia, but Algeria, Kuwait, UAE, Saudi Qatar, all of these places are in different places along sort of a continuum, but all working towards some form of stability and then growth and then maturation into what we're describing in Argentina. So fantastic for those countries, but more fantastic for Halliburton in terms of where we are technically clearly one of our growth engines and a place where we have meaningful competitive advantage. And the uptake on the electric fleets and the ZEUS IQ platform in Argentina is a great first step to broadening that capability around the world.

Our next question or comment comes from the line of James West from Melius Research.

Jeff, I wanted to ask a bit about, obviously, the year of what we called 3 months ago, rebalancing is no longer the year rebalancing. It's a much different environment, as you've noted. And you've talked about the NAM recovery and you've announced a number of major contract awards internationally. And so I'm curious about the customer conversations, Jeff and Shannon, that you're having today, is there a sense of urgency building? Is it still a little bit too early? Do they understand -- I mean, do the customers, I'm assuming they do, because the board rooms have to be talking about, the CEOs have to be talking about it and thinking about it. But is the sense of urgency of getting these projects going faster starting to unfold?

Yes. James, this is Shannon here. While it's still early innings, as I said, we had the signpost. But it was encouraging to us to see white space in Q2 just really get taken out in a very short period of time. I think another tail was really -- it wasn't just a short-term blip of trying to take advantage of the current curve right now. We're seeing H2 firming up as well. So I don't know if I used the word urgency, I'd say just really constructive conversations about getting back to work and grabbing the value that's out there that they see, not only now but for the future.

Okay. That's very helpful. And then maybe if you could briefly talk about what you're seeing on the exploration side. It seems to me a lot of the super majors have at least added a few incremental dollars to their exploration budgets. Is that -- am I reading that correctly? Does exploration going through a little bit of -- after a 10-year lull kind of a re-burst cycle?

Look, I think we're seeing a little bit of exploration, but I think exploration, we done some of that in different places. But I think a lot of the muscle is around development, I mean, in terms of producing more barrels. And that gets very much into what we're seeing in Namibia, West Africa actually largely in, let's say, Suriname, for example, we participated in a fair amount of the exploration. But more importantly, we're getting into the heavy lifting of development in the Caribbean broadly, and elsewhere, actually in Brazil. We've been quite successful in Brazil as well. So while some exploration, but I think really what we're seeing ahead of us is a lot more development in a lot of places.

Our next question or comment comes from the line of Neil Mehta from Goldman Sachs.

Yes. Great quarter here, Jeff. I guess the first question I had is just around capital returns. The buyback at $100 million was, I think, a little bit lighter than the run rate we've seen at $250 million a quarter. Was that just a timing thing? Just how are you guys thinking about the share return over the course of the year?

Niel, so overall, there's been no change in our focus on shareholder returns or our overall philosophy on buybacks, so to be very clear. We started the year lowered in our run rate, the run rate we were on in 2025, that is something that we actually mentioned on the Q4 call, and we mentioned that, that was our intent considering the macro situation we were facing at the time and some of the concerns around the speed of activity increase in the Middle East, et cetera. What you can expect from here is you can expect Q2 to be higher than Q1. You can expect H2 to be higher than H1 in terms of overall buyback. So our objective long term remains per share value creation really.

That's very clear. And then the follow-up is just on the technology side. You guys have had a lot of success here with VoltaGrid and your investment there. And of course, you're looking to deploy that over time, bigger in the Middle East. But any of your perspective on the power side of the business and [ bolt-on ] particular in your perspective on driving value from that segment?

Yes. Look, we're -- we really like our position in VoltaGrid, and we like where we are today. And we like what the company is doing. So from a shareholding position in VoltaGrid, very pleased with where we are and what the company is doing. I think separate from that, but along with that, is the international pursuit that we have underway and venture that we have with VoltaGrid. And I'm very excited about that very much on track. And I don't constrain that to the Middle East. In fact, lots of inbounds, lots of back and forth with potential customers in Australia, Japan, Canada, all around the world. And so I don't -- I'm actually very encouraged about that, where we have 400 megawatts sort of in the queue ready to get placed and have a lot of line of sight around how that might happen. So very excited about that, still.

Our next question comes from the line of Sebastian Erskine from Rothschild & Company.

Hopefully, you can hear me. Just a focus on portfolio longevity. That seems to be the theme kind of visual for the IOCs. Investors are rewarding growth. They're focused on reserve replacement ratios. And I guess Venezuela, we've kind of moved on a bit from that. But of course, with the higher commodity price environment, I presume that those barrels look more interesting now for operators. What are you hearing from the customers? And what's the latest on the [ revolization ] there?

Yes. Thanks. Look, making progress in Venezuela. I spent some time there. We're having great discussions with customers. We're talking about commercial terms. We've been and visited our bases or our facilities there. Those are in better shape than I expected. Lots of inbounds -- and yes, clearly, that is an opportunity. It's -- there's work to do with that question. I think some of that work comes faster than others. But really, really pleased to be back in -- have Venezuela back in business and the opportunity to work on really productive things. So share your view.

Really appreciate that. And just a question back on the U.S. Land environment. So obviously, we talked a lot the frac market and kind of the tightness there. Of course, it really requires a little bit to see a step-up in pricing. What might that mean for your incremental margins in the C&P business. I'm thinking about kind of 2027, if we presume there's a little bit of a slow start given a lot of CapEx budgets already set in the U.S., what might that mean for your incremental margins in C&P going forward?

Well, I think it'd be solidly up from here. Look, and again, it's an efficient business. We're running at the top of the market today in spite of where the market is and it doesn't take much at all in order for incrementals to be strong in North America. But it's the tightness that matters the most. And I think that as we've described before, the frac market sizes to what's in the market pretty quickly just because the absence of maintenance and other things as equipment runs down fairly quickly and sizes to what's in the market today. One of the reasons why we're so disciplined about stacking or setting equipment aside so that we force that level of discipline and efficiency on our operations all of the time. But with that said, I -- it's right there. It's very close to being, I would say, at a sold-out point for equipment that is effective and operating and maintained and all of those things.

Next question or comment comes from the line of Scott Gruber from Citigroup.

Yes. I want to come back to the shale developments abroad, which we're picking up even before the Middle East conflict, as you mentioned, now that those could accelerate. Do you see the international share opportunities outside of Argentina utilizing more ZEUS fleets given the efficiency advantage? Or do most of those plays just simply because they're less mature than Argentina, if they don't have the supply chains required for ZEUS, do they end up pulling more the legacy deal fleets from the U.S.? Just some color on how you see the equipment demand evolving internationally?

Well, ZEUS [indiscernible] unique solution and because of that, it's time to go to work in Argentina. There's scale, there's runway of work to do and absolute focus on improving recovery. And that combination is what makes it so valuable in Argentina, for example. I would argue as others are at different places on maturity, they're not at a place where they take advantage of ZEUS. And so you described it in economic terms, but I'm going to describe it more in technology terms because I think that's where it creates the most value. And quite frankly, the reason that commands a premium is because of its ability to measure where the sand is going, move the sand around and create a closed-loop fracturing environment. That's very different than simply the arbitrage on gas to oil. And I would say the markets that are in the earlier stages, let's call it, exploration phase for lack of a better word, really don't demand that level of capacity. And so for that reason, we've taken the exact same approach to ZEUS internationally than we did in the U.S., which is, we deploy those to contracts that have the duration to return the cost of capital and the capital during the term of the first contract. And so we view that the same around world, and we just don't see those conditions in a lot of other markets. Doesn't mean we don't get to that. In fact, I feel certain we will get to that, but that may not be today.

Got you. And the YPF contract sounds meaningful to your business in country. Can you dimension that at all for us? Just how much bigger it will grow your business in the country, the timing of that growth and just given the integrated nature and the efficiency gains that you're going to deliver, how do you think about the margin profile in the contract relative to your C&P segment average of around 15%.

Yes. Huge win for Halliburton there. We had a good footprint before the award. We have even a better footprint now. This is already being rolled out. We got fleets coming in throughout -- coming in literally now and then towards the end of the year into next year. So -- and the way we kind of think about our fleet just generally is it's going to go to the best pace as far as returns and pricing, and so we're moving that equipment out of North America, as we believe we have good pricing there and a sustainable program. So -- and I think it also just demonstrates the importance of our technology and improved recovery. YPF sees that and should be some really some long-term work and really pleased with that win, huge win for us.

Our next question comment comes from the line of Stephen Gengaro from Stifel.

I think two for me and one just going back to the U.S. frac business and pricing potential. Are your customers willing to take diesel, if you had any diesel available? And how much are they thinking about the price arbitrage and which should be, I would think, lead to higher -- obviously, higher prices for gas burning, but how would -- how are customers thinking about that right now?

Look, I think our customers are always looking for the most effective solution they can find. That's certainly the case. But I don't know that, that is what would motivate tightness in the market. So I think that's more of a decision between equipment and less of a decision about add equipment. And so I think the more important point is, if we just look at oil exports today and kind of where the market is in terms of the value, the price of the commodity and the advance of the commodity, I think that's more of the driver than it is arbitrage in terms of pick up a fleet, don't pick up a fleet. I think it's certainly valuable and it makes it more economic and it should create more pricing opportunities or your willingness to pay more. But I don't know that, that's what's driving what we see as tightness, two separate ideas in my view.

Okay. Great. And the other question, we've heard for years now about E&P capital discipline kind of being unwilling to add a lot of rigs and frac fleets back. Are you seeing any shift in that? Like how should we be thinking about this over the next several quarters? And obviously, [indiscernible] said what E&P say, but how are you viewing that especially in what was probably a tighter oil market for the next couple of years.

Look, I said we're in the early innings, and we are in the early innings. And by that, I mean big public companies typically would come later in that cycle. And so -- but the early movers are the smaller companies and -- but that's an important move because that early move by small operators are what take capacity out of the market, and creates tightness. And so timing of big operators, et cetera, is less clear today. However, what is clear is commodity prices structurally higher than what it was and there's going to be more demand growing and fewer barrels in the market. And that's going to create an opportunity for operators of all sizes to make more money. And so I think that tightness that we're seeing created by smaller operators shouldn't be overlooked. And I think the front edge of what we're seeing here a lot of inbounds our smaller operators taking capacity out of the market. And that's a good thing. That's really good for Halliburton.

Our next question comment comes from the line of Marc Bianchi from TD Cowen.

Hello, can you hear me?

Loud and clear.

Okay. Great, guys. I guess the first one is if the Strait were to open tomorrow and it were kind of a green light to get back to normal operations in the Middle East. How quickly could that happen? Maybe walk us through some of the industrial challenges and opportunities that exist there?

Yes. This is Shannon here. It's really -- I'll start with really kind of unclear how quickly that comes back. I'd say that we're ready as far as Halliburton's operational footprint is intact. Most of our business is working today. Our biggest scenarios was in Iraq and Qatar. But we are in constant contact with our customers and they're to support them when they're ready and able to go back to work. But the things that you'll start seeing first moving is probably just turning back on wells. And that would be a well-by-well situation of how they produce and how they flow, I'd say the longer they get shut in the more complex that gets. So that would be probably the first thing, and I think that puts Halliburton in a fantastic position. We are market leaders when it comes to intervention work in the Middle East, with our HWO and [ coal ] tubing work. So that would probably be first and then you will start seeing customers offshore starting to drill more in the deeper reservoir sections for the most part, the work that is going on offshore is on top holes. But like I said, unclear, but we're ready, and it will just take time to figure that out.

Go ahead, Eric sorry, Jeff, go ahead, please.

No, that's fine. Look, I think that the turning back on just at a high level is not immediate by any means, and there's certainly a gap in the supply chain in terms of oil to market. And so Again, I don't think that's an overnight matter. But I think what's equally important to the turning back on timing of that, again, important. However, the change in perception, I think, is equally important with respect to energy security. And I think it would not take that lightly. I think that is the probably bigger overriding impact on supply and demand and pricing.

Yes. Okay. Great. And then one for Eric on CapEx. So you reiterated the $1.1 billion which would imply an uptick in spending for the balance of the year. Is there a shot that we end up doing better than the $1.1 billion? Or is that just timing? And then just remind us if the VoltaGrid the part of the spend for the $400 million is happening in that guidance?

Yes, Marc. So again, the target right now for CapEx in '26 is $1.1 billion. It was a bit higher than the $1 billion we had initially guided to, that is really not related to the situation in the market is simply that we had some delayed delivery of capital equipment. I think the way to think about it is we intend to stay within a range of 5% to 6% of revenue for CapEx spend. We guided [ '26 ] on the low side of that range. So depending on having shape up, depending on opportunities, we might move slightly within that range. That is not impossible to think about particularly with the macro picture that we see today. So we'll just see how that evolved. And I think the other way is to think the other dimension to think about is the fact that the CapEx has really been overweighted towards the growth engines that we keep discussing. So we're really feeding the areas of growth in our business.

Okay. And that does incorporate your proportional spend of this 400 megawatts, whatever happens in '26...

It does not because we -- yes, we don't see that happening in 2026. So we kind of kept it separate.

Our next question comment comes from the line of Keith MacKey from RBC Capital Markets.

Just curious if you can expand a little bit more on your offshore comments you mentioned a few markets where you're seeing incremental demand. But can you just expand on that a little bit more? And specifically, how the market is shaping up versus what you might have thought 3 months ago or so?

Well, look, we really like our position in offshore. And so I view the offshore business from our perspective of what we're winning and the kind of work we have in the queue. And we've won a lot of work last year, and that's very strong for us. And we continue to be quite successful in the offshore market, led by, I think, a couple of things. Number one, our value proposition, which is to collaborate in engineered solutions, maximize asset value for our customers has proven to be meeting an unmet market need in terms of how we work and perform with our customers. But I think second and maybe equally important has been the progress we've made with technology, and particularly closed-loop automated geo-steering, I know that's a mouthful, but you'll hear it more and more because truly a significant step forward in terms of reservoir contact. And I think that's a big deal. So feel good about the offshore business. I really like our position, and we do see solid growth, [ '26, '27, '28 ] in the offshore market just from what we're going to be doing.

Got it. I appreciate the color. And just one more on the Middle East. I don't know if investors have a real good sense of what it will actually require to restart production when it is safe and feasible to do so in many places. Can you just walk us through a little bit more about some of the things you think will be required, whether it's workovers and other items like that? And ultimately, how will that translate into service line potential for Halliburton?

Well, look, I think that there's -- the work that we do, we are drilling in the upstream. I think there's clearly some storage and facility work that has happened before us. Then as far as bringing wells back on that might be shut in, again, I think as Shannon described, that's going to span the spectrum of how quickly they come on or don't come on and it would be irresponsible for me to project what I think that might be just because it would be an absolute guess. I do believe what happens though is the longer things are shut in, typically, the more complex they are to bring back on. But there's a lot of capacity certainly with Halliburton in the Middle East to participate in bringing those wells back on whatever might be required.

Thank you. This concludes the Q&A portion of our call. At this time, I would like to turn the conference back over to Mr. Jeff Miller for any closing comments.

Yes. Thank you, Howard. Before we wrap up today's call, let me close with this. I believe the oil and gas markets are structurally tighter, and I am convinced that Halliburton has the right service lines, strategy and technologies across the key oil and gas basins around the world. I believe this is a market where Halliburton will thrive. I look forward to speaking with you again next quarter. Thank you, Howard, you can close out the call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.