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Halliburton's 2020 plan centers on right-sizing business with a digital focus

Expecting a continuation of tight spending by customers in U.S. land markets, Halliburton Co. will remain focused this year on returns over growth, scaling its business in line with the market environment and focusing on digitalization to improve margins and returns.

Jeffrey Miller, CEO of the Houston-based oilfield services company, said as customer spending in North America declines again this year, the company will continue to execute its playbook to maximize returns and free cash flow. The company generated over $900 million of free cash flow for the full year of 2019, despite the problematic U.S. land market environment.

In 2020, "We plan to provide the service capacity that we believe will maximize the returns on our overall fleet, continue to invest in technologies that improve margins, keep strategically growing our non-hydraulic fracturing product service lines and continue the implementation of our service delivery improvement strategy," the CEO said during a fourth-quarter 2019 earnings call.

In the fourth quarter of 2019, as its completion and production division revenue decreased by 13% on the quarter to $3.1 billion, Halliburton recognized $2.2 billion of pretax impairments and other charges to adjust its cost structure to current U.S. land market conditions.

Beginning to implement a $300 million annualized cost savings and services delivery improvement strategy in the fourth quarter of 2019, Halliburton achieved about $200 million on a run-rate basis in savings through personnel reductions and real estate rationalization, and plans to implement an additional $100 million in cost savings measures in 2020, Miller said.

"While this impacts our business globally, the majority of the savings are geared towards North America. We are looking at 2020 with pragmatism. Early indications are that our U.S. land customers will reduce capital spending approximately 10% from 2019 levels," the CEO said.

With reduced activity in mind, Halliburton is stacking equipment to improve its returns. The company exited 2019 with 22% less available fracturing horsepower, rationalizing its equipment supply to the anticipated level of demand in 2020. "The size and scale of our business in North America give us the ability to rightsize without sacrificing our market leadership position and the value that comes with it," Miller said.

As the difficult market environment continues for completions and production, the company will focus attention on the expansion of its nonhydraulic fracturing businesses in North America. Expansion businesses include wireline and perforating, artificial lift and specialty chemical product lines, which all posted strong double-digit revenue growth in 2019.

As an integral part of its value proposition, Halliburton is also integrating digital technologies into its operations to enable it to shift the balance in the people/process/technology triad by replacing labor and reducing capital investments through automation and self-learning processes. "We believe this will allow us to harness the transformative power of digitalization and make a quantum leap in productivity, similar to going from horses to horsepower," Miller said.

Miller acknowledged that it takes time to build the scalable software and hardware infrastructure required to fully capitalize on digital solutions. However, over 100 customers with thousands of users across the globe are already leveraging its iEnergy digital ecosystem to integrate software and workflows across their organizations, he said.

"This open-architecture platform is unique in the industry and in our view, is a necessary condition for the successful adoption and scaling of digital solutions," Miller said.

The company is also pioneering new approaches to subsurface understanding, well construction and reservoir recovery, the CEO said.

"Over time, we believe digitalization will seamlessly connect subsurface, drilling and production, enabling customers to make asset-level decisions at the speed of execution. We have a solid foundation — the tools, the open architecture and the domain expertise — to deliver this vision successfully," Miller said.

Halliburton reported a fourth-quarter 2019 net loss of $1.7 billion, or $1.88 per share, down from a net gain of $668 million, or 76 cents per share in the same period in 2018. The results beat the S&P Global Market Intelligence consensus estimate for the fourth quarter of 2019 of 29 cents per share.