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Halliburton Co  (NYSE:HAL)
Q4 2018 Earnings Conference Call
Jan. 22, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Halliburton's Fourth Quarter 2018 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Abu Zeya. You may begin.

Abu Zeya -- Investor Relations

Good morning and welcome to the Halliburton fourth quarter 2018 conference call. As a reminder, today's call is being webcast and a replay will be available on Halliburton's website for seven days. Joining me today are Jeff Miller, Chairman, President and CEO and Lance Loeffler, CFO.

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, 2017, Form 10-Q for the quarter ended September 30, 2018, recent current reports on Form 8-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Our comments today also include non-GAAP financial measures that exclude the impact of certain items. Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our fourth quarter press release and can be found in the Investor Download section of our website. After our prepared remarks, we ask that you please limit yourself to one question and one related follow-up during the Q&A period in order to allow time for others who may be in the queue.

Now, I'll turn the call over to Jeff.

Jeff Miller -- Chairman, President and Chief Executive Officer

Thank you, Abu, and good morning, everyone. Happy New Year. When we rang in 2019, we started the celebration of Halliburton's 100 year anniversary, reaching our centennial as a milestone few companies achieve and it's a testament to the hard work of our employees to deliver on our core values of integrity, safety, creativity and reliability. From the humble beginnings of our Founder, Erle P. Halliburton, our Company has innovated, collaborated and executed through economic and industry cycles to become a global leader in oilfield services and technology. We look forward to our next century and continuing to deliver superior service to our customers and industry leading returns to our shareholders.

Now, I would like to give you some highlights for the full year and the fourth quarter of 2018. In this past year, we maintained our market share, generated industry leading returns and outgrew our primary competitor. We accomplished this by effectively competing in key markets by collaborating with our customers to engineer solutions that maximize their asset value and by continuing to make investments in strategic growth areas.

Total Company revenue grew 16% compared to 2017, and adjusted operating income increased 35%, finishing 2018 with total Company revenue of just under $24 billion, and adjusted operating income of $2.7 billion.

In our Completion and Production division, we capitalized on the market recovery in North America, delivering total year revenue growth of 22% and operating income growth of 40% year-over-year. Our Drilling and Evaluation division delivered 6% revenue and 3% operating income improvement year-over-year, reflecting the beginning of a recovery in the international markets. We generated approximately $3.1 billion in operating cash flow and retired over $400 million in debt.

Finally, we continued our focus on returning capital to shareholders through share repurchases and dividends, which totaled over $1 billion in 2018. And now, a few points about the fourth quarter. We finished the quarter with total Company revenue of $5.9 billion and operating income of $608 million, representing a sequential decrease of 4% and 15%, respectively. Our Completion and Production division revenue declined 8% sequentially and operating income was down 19%, driven by lower activity and pricing for stimulation services in North America.

Our Drilling and Evaluation division delivered a strong quarter, growing revenue 5% and operating income 2% sequentially. While our business in North America declined this quarter as the completions market softened, internationally, we delivered 7% revenue growth, which underscores the versatility and global reach of our business portfolio. The trajectory of this cycle has been far from smooth. The end of last year saw a large swing in commodity prices with both Brent and WTI retrenching over 40%, the levels not seen since June of 2017. The oil price has been gradually climbing since then and that's a welcome development. But increased price volatility creates near term headwinds as we enter 2019. I'm convinced, however, that the supply and demand fundamentals for multi year industry growth are still intact.

While short-term oil and gas demand changes are hard to call with precision, we know that the need for energy is consistently growing and the oil and gas industry, in general, and the oil services, in particular, are instrumental to satisfying that need. As for supply, I believe that a maturing OPEC, plus asset base, years of significant under-investment in non-OPEC, non-US production and natural decline curves in US shale will ensure demand for our services for years to come.

Today, our industry is going through a transformation brought on by the shale revolution and the recent down cycle. Because of that transformation, we're entering 2019 with a very different landscape, one that I think plays to Halliburton's strengths. First, North America is now the world's top oil producer and exerts considerable influence on commodity pricing. Second, the industry has cut a lot of costs out of the system and introduced significant efficiencies. And last but certainly not least, 2018 was a year of transition to a more disciplined free cash flow approach by many customers in the North American E&P industry.

As you know, many of our customers have shifted their strategy from production growth to operating within cash flow and generating returns. I believe this is good for the long-term prospects of our industry, this should make the industry investment cycle more rational and the commodity price volatility more range bound. Halliburton is well prepared for this market environment in order to deliver leading returns for our shareholders. As we've proven over the years and demonstrated in 2018, our technology, our people, our customer alignment and our financial discipline position us well to thrive in any market condition.

In 2016, I led the implementation of structural cost initiatives to cut more than $1 billion in costs out of our business. These included eliminating a layer of management, rationalizing our real estate infrastructure and streamlining our manufacturing footprint, among other things. We remain vigilant not to let these costs creep back in. Since then, we've also eliminated additional costs through our continuous improvement initiatives, such as implementing product design changes to increase throughput and reduce cost in our manufactured products. We will continue to drive cost and capital efficiency throughout our Company.

Another strategic element that positions us for success today is our consistent focus on returns. I believe Halliburton's success is driven by a coherent asset base, meaning assets that fit together and can earn appropriate returns. Greater asset velocity and superior job site execution, all geared to deliver superior returns. This is exactly what we have done and what we plan to continue doing. For example, maintaining our own frac equipment manufacturing center allows us flexibility and lowers our total cost of equipment ownership. We do not invest in assets that burden our balance sheet, that limit our capital flexibility without providing any significant differentiation and that don't generate significant returns. That's why I'm so excited about Halliburton, our strategy and our future performance.

Turning to near-term operations in North America. As we expected, the market for completion services experienced an activity decline during the fourth quarter as our customers responded to budget exhaustion and offtake capacity bottlenecks. This created excess equipment capacity in the market and had a detrimental effect on services pricing.

Looking ahead to 2019 in North America, the drop in oil prices at the end of last year has impacted our customers' budgets for the year. As I talk to customers, I hear three distinct approaches. First, the majors, they will largely stay the course on their budget plants, and as many of them recently shifted their investment priorities from offshore and deepwater to shorter cycle North America shale plays, that is good news for Halliburton.

Second, large independents, most of them already budgeted for $50 oil last year, so their spending should be mostly flat in 2019. And finally, small E&Ps who have limited access to capital. They are likely to cut budgets most aggressively if the commodity pricing doesn't improve. But they are also the most flexible on budget expansion, if the market is supportive later in the year. As our customer budgets reload in the first quarter, they are going back to work. And as a result, we expect modest improvement in completion activity levels. We anticipate, however, that the pressure on service pricing will continue in the first quarter. As the year unfolds, the catalyst for a broad completions activity rebound in North America are the following.

First, the supportive commodity price environment. Second, the DUC count in North America today is the highest it's ever been. Although inventory wells exacerbated the short-term activity declines for completions in the last two quarters, they're essentially a future revenue opportunity. And finally, takeaway capacity constraints in the Permian Basin are expected to alleviate in the second half of the year. That means many customers should go back to work during the second quarter to get production ready for the new pipelines.

As the catalysts I just described materialize, they will have a direct impact on increasing customer urgency. This in turn should drive higher pricing in the second half of the year. As we traditionally play at the higher end of the price range, based on our service quality, technological advantage and presence in all US basins, I expect Halliburton to be the first to benefit from price recovery. No matter what, as we have in the past, Halliburton will make more than anyone else out of every dollar spent in North America.

Halliburton has also proven over the years that it's able to adjust as the market environment changes. We do not expect to rely on rising service pricing alone to earn returns. We intend to invest effectively and remain flexible in our cost structure. Specifically, we intend to reduce our 2019 capital spend compared to 2018. We're also prepared to stack equipment if it does not meet our returns thresholds. We intend to dynamically respond to the changing market, maintain the right level of capital spending to support our business and continue to deliver strong cash flow and leading returns.

Internationally, the recovery continues at a modest pace. This quarter we grew revenue from international operations 7%. On a full year basis, our international business delivered topline growth for the first time since 2014, which confirms that the downturn in activity is now behind us. As I discussed on the third quarter call, the international recovery is led by the national oil companies and focused on mature fields. NOCs generally do not alter their budgets in response to short-term oil price volatility and do not base their spending plans on the crude oil futures strip. This makes me believe that the recovery in the international markets will continue.

Over the course of 2019, activity should improve across all international regions, although off a low base in some geographies, like Asia Pacific and Africa. The existing contract backlog and the pipeline of projects is stronger coming into 2019. This should lead to healthy single digit international growth for the whole year.

In the first quarter, we expect international revenue to decline similar to last year, due to normal seasonality and the elimination of year-end software and product sales. Last year, we won several major foothold contracts in different geographies. This work was priced very competitively, and it will take us time to optimize contract performance and improve profitability. With the international recovery continuing and all regions pulling their weight, we should start seeing equipment availability tighten in key markets. This should lead to better services pricing. With the activity pipeline improving internationally, we will selectively balance growth and returns in the international markets.

Despite a slow start, 2019 will be another year where we continue to build the foundation for a longer-term recovery. As North America oil production reaches a historic high and operators are focusing on returns over growth, Halliburton is well prepared for this market environment. We've always believed in and practiced responsible capital stewardship, prioritizing capital efficiency, investing in the technologies that deliver differentiation in returns and generating strong cash flow.

We have the right leadership team and bench strength to ensure the continued success of our global franchise. Just last week, we announced that consistent with our succession management plan, Mark Richard, who is currently Senior Vice President of the Northern US region, has been promoted to succeed Jim Brown as President of the Western Hemisphere. I've worked alongside Mark for many years all over the world, and I'm excited for him to lead our Western Hemisphere business.

I'm grateful to Jim for his more than 20 years of outstanding service to Halliburton. His leadership was instrumental in helping Halliburton execute and deliver industry leading returns in North America and throughout the Western Hemisphere.

Now, I would also like to welcome Lance Loeffler as our new CFO. You all know Lance well from his time as the Head of Investor Relations. He has worked closely with our management team and the investment community over the last few years and I'm confident that he will do a great job leading the Company's finance organization.

I will now turn the call over to Lance to provide more details on our financial results. Then I will return to discuss how we are strategically positioned to differentiate ourselves in the current market and deliver returns for our shareholders. Lance?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Thank you, Jeff. I'll start with a summary of our fourth quarter results compared to the third quarter 2018. Total Company revenue for the quarter was $5.9 billion and operating income was $608 million, representing a sequential decrease of 4% and 15%, respectively. In our Completion and Production division, revenue was $3.8 billion, a decrease of 8%, while operating income was $496 million, a decrease of 19%. These declines were primarily driven by lower activity and pricing for stimulation services in North America, partially offset by stimulation activity increases in Argentina and year-end completion tool sales internationally.

In our Drilling and Evaluation division, revenue was $2.1 billion, an increase of 5%, while operating income was $185 million, an increase of 2%. These increases were primarily due to year-end software sales, increased fluids activity in the Gulf of Mexico, and improved project management activity in Latin America. These improvements were partially offset by reduced activity for drilling services in the Western Hemisphere.

In North America revenue decreased by 11%, primarily driven by lower activity and pricing in stimulation services, partially offset by higher fluids activity in the Gulf of Mexico. Latin America revenue grew 16%, driven primarily by year-end software and completion tool sales and higher stimulation activity across the region, coupled with improved activity across multiple product service lines in Mexico. Europe/Africa/CIS revenue remained relatively flat, primarily driven by seasonal declines in pipeline services across the region, coupled with decreased activity across multiple product service lines in the North Sea. These results were partially offset by year-end completion tool sales in Ghana and Nigeria.

Middle East/Asia revenue increased 8%, largely resulting from year-end completion tool sales in the Middle East, coupled with higher project management activity throughout the region. In the fourth quarter, our corporate and other expense totaled $73 million, which is in line with our previous guidance. We expect corporate expense in the first quarter of 2019 to be approximately $65 million. Net interest expense for the quarter was $137 million, and we expect it to remain approximately the same for the first quarter of 2019.

During the fourth quarter, we recognized the impact of a strategic change in the Company's corporate structure, which resulted in a net tax benefit of $306 million or $0.35 per diluted share. Our effective tax rate for the fourth quarter was approximately 21%, excluding the tax benefit I just discussed. We estimate our 2019 full year and first quarter effective tax rate to be approximately 24%, based on the market environment and our expected geographic earnings mix. We generated approximately $850 million of cash from operations during the quarter, ending the year with a total cash balance of $2 billion. Capital expenditures during the quarter were approximately $550 million, with our 2018 full year CapEx totaling approximately $2 billion. For 2019, we intend to reduce our capital expenditures by around 20% to $1.6 billion.

This spend will be focused on key technologies and capabilities that deliver differentiation and drive returns, such as our new directional drilling platform and our production business expansion. We remain committed to generating strong cash flow by using cost levers, managing working capital and remaining flexible in our CapEx spend, focusing on strong return generating opportunities. And we will use excess cash prudently for strategic investments that meet our returns' thresholds, for reducing debt and for returning cash to our shareholders.

Turning now to our near-term operational outlook. Market dynamics continue to make forecasting a challenge, but let me provide you with some comments on how we believe the first quarter is shaping up. As is typical, our international results will be subject to weather-related seasonality and the roll off of higher margin year-end software and product sales. North American results will be impacted by near-term headwinds that Jeff described earlier. We will continue to pull the levers that enable us to keep generating positive cash flow for our businesses. As such, in our Completion and Production division, we expect sequential revenue to decline mid-to-high single-digits with margins decreasing 300 basis points to 400 basis points.

For our Drilling and Evaluation division, we anticipate sequential revenue will experience a decline in the mid-to-high single-digits, largely in line with prior year declines, with our margins declining by 100 basis points to 150 basis points.

Now, I'll turn the call back over to Jeff.

Jeff Miller -- Chairman, President and Chief Executive Officer

Thanks, Lance. I'm excited about Halliburton, both this year and into the future. We have the right team, the right strategy and the right technology to meet our customers' evolving needs and deliver industry leading returns. Our value proposition is working and I hear it from our customers every day. Unconventionals are a unique and valuable asset and our customers have developed this asset to revolutionize the industry. We at Halliburton saw this development early, and have been investing in and innovating ever since.

As a result, we are the dominant service provider in this space. Our innovative technology, the quality of our service offering, our customer alignment and our market presence in all the US unconventional basins position us to continue helping our customers lead the shale revolution into the future. I discussed earlier that the international recovery is led by mature fields. I'm equally excited about Halliburton's mature fields technology portfolio, and we intend to continue building our mature fields capabilities in 2019 and beyond.

Technology plays a critical role in our business. It drives the progress in unconventionals, revives mature fields around the world and makes offshore economic again. You know that we are the leaders in returns. What you may not realize is that Halliburton is a clear leader when it comes to technology development. In 2018, we received nearly 900 patents, a 10% increase year-over-year. IFI CLAIMS a database provider of US patent data, ranked Halliburton as the 39th largest grantee of US patents last year.

More importantly, we're the only oil and gas sector company in the Top 50 list. It is critical to understand how we prioritize technology investment. We spend money on developing or acquiring technologies that help our customers solve their asset challenges, drive better productivity and reliability, minimize downtime and improve asset velocity. This helps create meaningful differentiation and deliver returns on our technology investment.

We're developing new completions technology that solidifies our leadership position in unconventionals, differentiates Halliburton from the rest of the market and delivers on the next level of efficiencies to both the customer and Halliburton.

Over the last few years, technology has driven substantial operational and surface efficiencies in North American shale. I believe the future of unconventional technology will be more heavily weighted toward enabling higher well productivity. As part of our intelligent frac strategy, in 2018, we introduced our Prodigi AB intelligent fracturing service that brings automation to hydraulic fracturing. Prodigi AB automates the breakdown process of a fracturing treatment. This helps achieve consistent cluster performance, increase production from our customers' assets, and reduce wear and tear on our equipment.

I'm pleased to report that by the end of 2018, we have successfully deployed Prodigi AB service across all US shale basins. It has been used on more than 1,450 stages for 20 different customers across the country, from the Eagle Ford shale in South Texas to the Bakken formation in North Dakota. Strong customer interest and willingness to pay a premium for this service support my point about the growing importance of technology that improve well productivity in unconventionals.

Another technology that we have heavily invested in last year and will continue to spend capital on in 2019 is our directional drilling offering. As the wells in the US unconventional basins beat lateral length records, we're excited to introduce the next generation of rotary steerables to help our customers build better wells. We designed our new iCruise rotary streerable system from scratch, using the latest material science and digital innovations, with the focus on decreasing operating costs, improving reliability, and reducing maintenance time and expense. As part of the system development, we've also delivered a host of innovated ancillary technologies, such as smart diagnostic systems for the ease of repair and maintenance and a drilling advisory package for automated drilling.

Since launching the tool in September of last year, we've already deployed it in all major US shale basins. In 2019, we will focus on rolling out the iCruise system in the international markets. In fact, we already had test runs for several customers in the Middle East and delivered the longest lateral and longest well in Argentina's Vaca Muerta Shale in our first deployment. Today, we estimate that 40% of the wells around the world are either shut in or producing below their potential, due to well integrity issues, costing our customers billions of dollars in lost production. Halliburton's cased-hole wireline tools for well integrity assessment enable operators to accurately understand the conditions and treat the problems of mature wells.

Our electromagnetic pipe examiner technology is the only service in the market that can quantify corrosion and metal loss through five strings of pipe. And our acoustic conformance examiner service uses advanced hydrophone sensors and proprietary analysis software to pinpoint leaks that can occur in the well structure. These differentiating technologies help our customers optimize their asset performance and help Halliburton solidify our position in mature fields markets, such as the Middle East, Asia, the North Sea and the Gulf of Mexico.

Artificial lift is a critical capability for both unconventionals and mature fields. And that is why Halliburton has expanded our artificial lift portfolio. Boosted by our acquisition of Summit ESP, our artificial lift business showed 43% revenue growth year-over-year and delivered outstanding margins. This is what I call a good return on a technology investment. In the fourth quarter, we started Summit's international expansion, opening a testing and disassembly facility in the Middle East, and making our first ESP deliveries in Latin America and the Middle East countries. We will continue investing in our production business in 2019, mainly in our artificial lift and specially chemicals product lines. We are the execution company. We provide cutting edge technology and exceptional service quality for our customers. And we believe these differentiators will result in industry leading returns and positive cash flow for our shareholders.

In summary, in 2019, we will continue to build the foundation for a longer term recovery. In North America, we expect completions activity to moderately improve in the first quarter. I believe the catalyst for North America market improvement exist and as they materialize, I believe Halliburton is best positioned to benefit from those improved market dynamics. The recovery will continue in the international markets. Halliburton has the project backlog and line-of-sight tender pipeline to continue our international growth. Halliburton celebrates 100 years of service in 2019. I'd like to thank all of our current and past employees who made Halliburton what it is today. It's a big deal to be a century old. It's an even bigger deal to reach this monumental milestone and remain leaders in our field. As we enter the next century, I can assure you that we will remain focused on collaborating with our customers and engineering solutions to maximize their asset value and on delivering strong cash flow and industry leading returns for our shareholders.

And now, let's open it up for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from the line of James West of Evercore ISI. Your line is now open.

James West -- Evercore ISI -- Analyst

Hi, good morning, guys.

Jeff Miller -- Chairman, President and Chief Executive Officer

Good morning, James.

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Good morning, James.

James West -- Evercore ISI -- Analyst

So, I guess, do you guys focus on returns?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yes, we do.

James West -- Evercore ISI -- Analyst

I think that was loud and clear. I guess the real question I have in my mind is, as an industry -- the service industry return peaks have gotten lower, the valleys have gotten lower as well. We're as an industry, not Halliburton specifically, but as an industry we're still negative, even though we're three years into a recovery, so there's a major problem across the industry, and you're going up against people that don't have that same strategy. Now, I think there's a dichotomy. I think internationally, I think your main competitor does have a returns-focused strategy. But I think in North America there's just too much capital that's not returns focused. Is that a a fair statement? And how do you guys think about going up in a market like that? I mean, do you really need to start showing a lot more discipline in stack and equipment?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. Thanks, James. Broad question but an important one. We manage our business and, you know, that's one of the things that's informing our view of capital and capital returns. I talked about returns. Just don't discount the technology involved in our business in what we do, which differentiates Halliburton, but I think that the -- our focus on returns, so that means managing capital spend, and also the willingness to stack equipment that is not making a return is critical. So that way we do actually -- we do make those returns, and it allows us to flex, both down to the market where we see it, but also the differentiation is, we take a very long view of this business. We will differentiate and we're all around the business of how to make more barrels with existing wells. And so I think all of that plays together over time, but we're going to make returns along the way.

James West -- Evercore ISI -- Analyst

Okay. And then how do you think about cash conversion, this cycle relative to perhaps other cycles? I mean, it seems like if we -- we now have international go-ins. North America is a little bit up and down, but you seem to have invested -- I think there's been enough investment in North America that you really should be only at sustaining levels now. So should we start to see cash conversion rates improve? And do you have a target there?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah, I mean, rather than a target, I mean, our view is we're going to generate solid free cash flow in any market and I think the market that we see shaping up is one where we can generate a solid -- quite a bit of free cash flow. Yeah, I would just add, James that -- just to remind everybody, this is the first time ever I think that we've generated over $1 billion of free cash flow in back to back years. Our expectation is that that will continue, right? That will be with a focus on managing costs, improving our working capital and being disciplined around our CapEx spend.

James West -- Evercore ISI -- Analyst

Okay, alright. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Jud Bailey of Wells Fargo. Your line is now open.

Jud Bailey -- Wells Fargo -- Analyst

Thank you. Good morning.

Jeff Miller -- Chairman, President and Chief Executive Officer

Good morning. Hey, Jud.

Jud Bailey -- Wells Fargo -- Analyst

A question on your comment, Jeff, on completion activity being -- I think you said slightly higher or slightly improved. What kind of visibility do you have at this point for the first quarter in terms of your agreements with customers, given rig counts declining or seems to be declining? I'd be curious to get your thoughts on -- on how you see the interplay between completions and maybe kind of drilling-related services in the first quarter as well.

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah, Jud. Look, I think those two are separating more and more in terms of what activity is being done. We've got pretty good visibility through the quarter and that's why I'm able to see why I do see modest increase in the amount of completion activity over that period of time. The drilling services may slow a bit, and I think that the pivot would more to completions. But I also -- you know, we look ahead or beyond that, and we see those catalysts unfolding out into the future. But, that's why I describe it as modestly up. But when you look at our calendar, it looks modestly up through the first quarter, certainly relative to Q4. So we said it would be a bottom in Q4 and we see an activity pickup here.

Jud Bailey -- Wells Fargo -- Analyst

Okay. I appreciate the color there. My next question is on D&E margins that came in a bit lighter than what we thought for the fourth quarter, especially when you factor in year-end product sales, and then you're guiding down for those to drop again in the first quarter. Can you give us a little bit of color what's going on within D&E that has margins, I think, coming in below what we would have thought? And then how do we think about the rest of the year? Is there a catalyst to see those margins start to move a bit higher over the course of 2019?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. So what you're seeing there reflected is, we've won a number of contracts around the world, particularly in D&E. That's where some of that growth comes from. And, as I've described, sort of, throughout all of 2018, a very tough pricing environment out there. And our view is that we optimize those contracts over time and we will and we will get to work on them and we will mobilize on the rigs, but there'll be some work to do to get through that. Now, overall, our business improves as we work through the year, as we progress, but there's just optimization that needs to happen around the world.

Jud Bailey -- Wells Fargo -- Analyst

Okay, alright, thank you. I'll turn it back.

Operator

Thank you. Our next question comes from the line of Bill Herbert of Simmons. Your line is now open.

Bill Herbert -- Simmons -- Analyst

Good morning. Jeff and Lance, C&P incrementals in Q4 were pretty benign at 35%, yet the guidance for Q1 imply 60%. Could you explain what's likely to unfold there? I assume it's mostly pricing. And in the similar vein, you had year-over-year incrementals for C&P in the low 20% in 2018. How should we expect incremental margins for C&P to unfold beyond the trough of Q1?

Jeff Miller -- Chairman, President and Chief Executive Officer

Well, the Q1 is pricing, you described it well. I mean, and as I described Q4, we saw activity down, but when we saw the pressure on the commodity price along with budget time that created quite a bit of price pressure that manifested itself through Q1. Now i also describe what I see as the catalysts later in the year that I think create more customer urgency, from a price standpoint start to resolve that. And I would be surprised if we didn't expect -- we can see those things unfolding. We feel pretty good about them as we work through the balance of the year. Now, that said, I think I was clear in terms of what our behavior would be if we don't see that, which is equipment that to the extent it is not making a return, it would get stacked.

Bill Herbert -- Simmons -- Analyst

Okay. And then Lance, when we think about the capital intensity of the business, on the one hand, there is a commendable contraction in capital spending for 2019, down 20%, on our -- on our numbers, you're still coming at 6% to 7% of revenues. And I'm just -- and you were kind of oscillating between 7% and 9% last year. I think you bottomed, over the past couple of years, at 5%. In light of the competitive structure and in light of the more labored peak margin profile associated with the business, how should we think about the fundamental capital intensity of the business on a full cycle basis?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Yeah. Well, I think, our focus on sort of CapEx for this year, I think, really the overweight spend in our CapEx going forward is clearly focused on Sperry business line as we continue to retool and rekit with a new technology. I think as you might expect, some of the spend in our pressure pumping business would be more in line with DD&A. So, I think, as we look out for the remainder of the year, we believe the range of $1.6 billion is the appropriate level of CapEx, given the strategic investment that we're making and the level of activity that we expect at this point.

Bill Herbert -- Simmons -- Analyst

Okay. Thanks.

Operator

Thank you. Our next question comes from the line of Sean Meakim of JP Morgan. Your line is now open.

Sean Meakim -- JP Morgan -- Analyst

Thanks. Hi, good morning.

Jeff Miller -- Chairman, President and Chief Executive Officer

Good morning, Sean.

Sean Meakim -- JP Morgan -- Analyst

So, Jeff, you talked about the difficulty of forecasting this cycle. So I'm just curious about kind of where you put some of the bigger flex points within C&P for '19. I mean, you're going to trade some price in exchange for volumes. What's your confidence level in terms of C&P topline being able to grow year-on-year, and your confidence level in margins bottoming in the first quarter and the first half of the year?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. So typically we will see margins bottom the quarter after we see activity bottom and that's not unusual. That's kind of what we're seeing happen in Q1, right now. What I see on the -- as I look through the balance of the year, if we think about the DUC count that's out there and that it needs to get converted into cash flow by customers, pipes alleviate as we work through the year in the Permian Basin. No question about that. Supportive price environment, commodity price environment, which we do see shaping up at this point. And so that will be very helpful. And so that combination of things gives me a lot of confidence that as we work through the year, we should see better performance, both from an activity standpoint and also a customer urgency standpoint.

Sean Meakim -- JP Morgan -- Analyst

Okay, got it, thank you. That's helpful. And then just to maybe expand a little bit more on the CapEx budget. Lance, could you maybe just -- is there a range that we could talk about around that $1.6 billion? You gave some some detail on where you expect to see some of the growth areas, but maybe within within North America, depending on how things shake out as you go through the year, could we quantify a bit of how that could flex from that $1.6 billion?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Well, yeah. I mean, I hesitate to -- I mean, I think, what we described was around 20% in my commentary. Again, we believe that based on our outlook right now, for the year $1.6 billion is appropriate. But I think it's pretty obvious from the rest of our commentary that we're willing to flex down, if need be, if it doesn't play out the way that we think it will with the catalysts that Jeff described. So I think there's flexibility in the CapEx budget to adjust as needed.

Sean Meakim -- JP Morgan -- Analyst

Okay, fair enough. Thank you.

Operator

Thank you. And our next question comes from the line of Scott Gruber of Citigroup. Your line is now open.

Scott Gruber -- Citigroup -- Analyst

Hey, guys. Good morning.

Jeff Miller -- Chairman, President and Chief Executive Officer

Good morning, Scott.

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Good morning, Scott.

Scott Gruber -- Citigroup -- Analyst

I want to come back to the US competition question a bit. Just because there's a debate in the investment community as to the degree to which you're seeing rising competition, especially for the top-tier E&Ps and the majors in the US, just as US E&Ps look to insource more functions and so many smaller service companies expand geographically into more product lines. Do you hold this opinion? Are you seeing rising competition, especially among the top tier E&Ps? And if so, how are you adjusting the strategy and response?

Jeff Miller -- Chairman, President and Chief Executive Officer

Well, this business is always competitive. So that's nothing new for us when we look at the marketplace. And when I think about our business, that's why we focus very much so on our value proposition, which delivers great service quality. Obviously, we've got a fantastic business development organization. So we see things and we're engaged with our customers in solving their problems. And then finally, technology. In the technology piece there's a chunk of that that happens around surface efficiency, which we talk a lot about and then more and more we talk about how we make more barrels out of each well. And clearly, we're differentiated along all of those continuums. And I think as we looked at '19, '20 and then beyond at this fantastic resource, that shale, our contribution and what we do around, not just modeling, but frac treatment and all that we can do to make more barrels, will be progressively more important and differentiating.

Scott Gruber -- Citigroup -- Analyst

Got it. And maybe if you could just touch on how you view the structural margins in North America. You've done a great detail about the investments in directional and lifting technology, which is great. Does that mean that overall you think about the the structural margins in North America the same as you have in the past at around 20%?

Jeff Miller -- Chairman, President and Chief Executive Officer

Look, I think there's a lot of room to run in North America, and there's a lot of earnings power in North America. It's a huge resource. And I'm not going to try to put a date on 20%. But what I will describe is, if we sort of look at points in time, 2014, we are right around there, 2018 in 3Q, we got around there, 2Q -- excuse me. And then as we -- those conditions are there, certainly, to have that earnings power. And, I expect the things that we're doing now around technology and discipline and execution drive that. Then I also -- I mean I'll pivot back to the technology and the value of that resource and how many ways there are to make a lot of earnings. So, if we're investing in drilling and/or investing in production today, those are important areas of growth, but that -- our R&D spend is very much focused on making more barrels in unconventionals.

Scott Gruber -- Citigroup -- Analyst

Got it. Appreciate the color. Thank you.

Operator

Thank you. Our next question comes from the line of James Wicklund of Credit Suisse. Your line is now open.

James Wicklund -- Credit Suisse -- Analyst

Good morning, guys.

Jeff Miller -- Chairman, President and Chief Executive Officer

Good morning, James.

James Wicklund -- Credit Suisse -- Analyst

Just so you know, the background behind the call is coming up with an earnings estimate for Q1 in the low 20s, just so you know. A question about the international business. You know the higher project management activity throughout the Middle East, you talk about winning two contracts in Iraq. You're going to mobilize four to six rigs. Can you tell me -- this is, obviously, becoming a bigger piece of everybody's business. Are you going to use Trinidad's rigs? Is this a fixed price deal? Is there opportunity for upside? Can you tell us how these types of contracts are different from the typical HAL contracts? Are they different from other international IDS projects?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yes, these aren't different from other IDS contracts. And in terms of which rigs we'll use, we'll use the rigs that are best positioned and most competitive to do the work. So -- but the contracts I'm describing are fairly consistent with, you know, lump-sum turnkey type activity where, obviously, there are exceptions around risks and other things that we manage, but they're not wildly different. They are an important part of our business and I've described that's a muscle that's well developed for Halliburton. But at the same time, there are many points along the continuum between lump-sum turnkey and discrete services. And we're participating in all of those today in a number of different markets.

James Wicklund -- Credit Suisse -- Analyst

Okay. My second question, if I could, from a general point of view, it's been mentioned a little bit a couple of times this morning, but in the last 10 years, your returns have declined, in the last 10 years your market cap is right back where it was 10 years ago today. The industry as a whole doesn't seem to be creating any value. Your customers' market caps are up 3x. The service industry, you guys, which are most of it, you are flat to where you were 10 years ago. How does the business change going forward, so that you actually get to capture some of the value you create, rather than looking at your ROIC for last 10 years, see that value decline?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. Well, Jim, I think we talked about some of that this morning, but it's free cash flow and --

James Wicklund -- Credit Suisse -- Analyst

Yeah. But the Company has been generating free cash flow up and down the cycle. Then I'm talking about return on invested capital as opposed to just cash flow generation. You guys talk about, you know, you have your thresholds for returns, but basically you're saying you won't work anything below cash breakeven. Is the threshold for returns to you guys, cash flow breakeven?

Jeff Miller -- Chairman, President and Chief Executive Officer

No. And I think the -- when I look at -- we step back and look at the kinds of investments that we're making and what we are able to do for clients to generate value, it generates value for us. And I would say there's a lot more focus today on technology that generates value for us. When I talk about technology that's the kind of thing we're investing in, it either lowers our cost or makes us more productive and generates a better return.

James Wicklund -- Credit Suisse -- Analyst

Is this the change over the strategy of the last 10 years?

Jeff Miller -- Chairman, President and Chief Executive Officer

No, it's not a change, but I think it is probably more prescriptive in terms of how we're doing that. And look, I think that the contribution of what we do is just that important to making this work and I think that we will generate better and better returns as we work forward.

James Wicklund -- Credit Suisse -- Analyst

Okay, gentlemen. Thanks much. Good quarter.

Jeff Miller -- Chairman, President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Chase Mulvehill of Bank of America/Merrill Lynch. Your line is now open.

Chase Mulvehill -- Bank of America/Merrill Lynch -- Analyst

Hey, good morning, fellows. I guess first question -- hey -- so, if we think about US onshore completions business, just given US shale, there seems to be more scaling up and scaling down of this business. What's your strategy to kind of manage the cost around that as there's a much more inherent kind of scaling costs for this business?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. When I think -- I look to our business development organization to be way out in front of that in terms of our ability to respond, I think we do respond quickly to that. I think our response in Q4 was pretty quick to that. And as I look ahead, that alignment is critical. And I also think the types of investments that we make that allow us to be more flexible around scaling up and scaling down and more variable around that make us even more effective at that.

Chase Mulvehill -- Bank of America/Merrill Lynch -- Analyst

Okay. I mean, in the fourth quarter did you stack any frac fleets?

Jeff Miller -- Chairman, President and Chief Executive Officer

Look, we -- if we look in Q4, we had a lot of equipment moving around in Q4, some sidelined for a variety of reasons. But, in fact, that is a response. We had customers that we wanted to finish out the work with for the year and as we go into '19, I think, we've got that same ability. As I said, we're prepared to stack equipment when it doesn't meet economic thresholds.

Chase Mulvehill -- Bank of America/Merrill Lynch -- Analyst

Okay. And then turning to the first quarter, when we think about North America, what kind of revenue decline do you expect are included kind of in your -- or implied in your guidance? And then you gave C&P margin decline of 300 bps to 400 bps. If you were to just kind of isolate North America overall, what kind of margin decline should we expect in North America?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Yes. I mean, I think, largely the guidance that we gave was a focus on the North America impact of the pricing that Jeff discussed, right, on the topline and on the bottom line, in terms of margins.

Chase Mulvehill -- Bank of America/Merrill Lynch -- Analyst

Okay. I mean, so when we think about North America, if we -- C&P was down mid-to-high single-digits on revenues and margins were down 300 bps to 400 bps. Is that a good proxy for kind of North America for 1Q?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Yeah. And we've said that in the past, right. I mean, I think C&P has been a pretty good proxy for North America.

Chase Mulvehill -- Bank of America/Merrill Lynch -- Analyst

Okay. Just wanted to make sure. All right, thanks Lance. Thanks, Jeff.

Jeff Miller -- Chairman, President and Chief Executive Officer

Yes.

Operator

Thank you. Our next question comes from the line of David Anderson of Barclays. Your line is now open.

David Anderson -- Barclays -- Analyst

Thanks, good morning. Jeff or Lance, I was just kind of -- wonder if you could just talk a little bit about capital deployment internationally. You talked about the new IDC contract in Iraq and it has been a big business for you over there. I'm just kind of curious, you had mentioned that D&E margins are being held back a bit by mobilization costs. So how should we be thinking about kind of where you are in the overall cycle, as LSTK has kind of ramped up over the last few years? Are you in a place where it's really harvest mode? Or do you think there's going to be more of these contracts that keep coming in here that might kind of keep it in this place here for a little while? If you could just kind of help us understand how that capital deployment and how it kind of that impacts D&E as you think about maybe the next kind of 12, 18 months, please?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Yeah. And I think a lot of that start-up around, you know, a lot of contracts that were won in 2018, as I talked about, we were winning things at the bottom of the cycle. We know we can optimize those, but that's -- it starts with price and optimization. Some of those were mobilizing too. We're winning-- we have won -- we don't talk about all of them. But we won contracts in almost every geography of substantive size throughout the last year. What's probably more encouraging to me as I look around the marketplace and we see anecdotes, there are anecdotes today, but where we see acute tightness and we're able to move quite a bit on price. Now, that doesn't resolve over a quarter or a couple of quarters. But it is indicative of the kind of tightness that we would expect to see as a recovery unfolds, and we start to see growth into 2019 and beyond.

Jeff Miller -- Chairman, President and Chief Executive Officer

So Lance, now that you have the purse strings and you're kind of looking at capital deployment internationally for projects like this, can you just help me understand is that capital deployment, for international, is that higher or lower than what has been the last -- say, 2018? Would expect that to tail off here? Or is there just -- you have got to keep it open if the opportunities present themselves?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Yeah, I mean, right now, the capital deployment going forward is really focused on Sperry, right. That's a lot -- that's D&E related as it relates to our international business and the technology overhaul that we're making there and making sure that once that technology is really invested in terms of the inventory of tools in the fleet that we have for our directional drilling business. So, it's overweight, with the focus on Sperry today.

David Anderson -- Barclays -- Analyst

And maybe one last quick question for Lance. Just on that CapEx budget, can you give us a sense of kind of what maintenance is? I know it's a really difficult term, but any kind of sense as to kind of were of that $1.6 billion, what you would consider to be maintenance?

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Yeah, I don't -- we tend to stay away from the term maintenance when it comes to our CapEx. It's really all growth related, but I would say that from a financial perspective, sort of in relation to our depreciation and amortization for the year, it's sort of -- $1.6 billion is sort of a sustaining level, meaning it's matching what's rolling off.

David Anderson -- Barclays -- Analyst

Makes sense. Thank you very much, Lance and Jeff.

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Kurt Hallead of RBC. Your line is now open.

Kurt Hallead -- RBC -- Analyst

Good morning.

Jeff Miller -- Chairman, President and Chief Executive Officer

Good morning, Kurt.

Lance Loeffler -- Executive Vice President and Chief Financial Officer

Good morning, Kurt.

Kurt Hallead -- RBC -- Analyst

I just wanted to get a general sense from you to the extent possible, right, if we're looking at a $50 WTI oil price environment, $60 (ph) Brent environment and that really doesn't change a heck of a whole lot throughout the course of the year. When you think about the total Company revenue dynamic for '19, do you think you'd be able to squeak out revenue growth or given some of the first quarter challenges and the potential dynamics around the progression in North America for the rest of the year, do you think it's going to be too challenging to to get revenue growth? What's your take -- best take right now?

Jeff Miller -- Chairman, President and Chief Executive Officer

Look, it's -- $50 -- $50, $55, in my view, is a supportive commodity price for activity, both internationally and in the US. And so, I'm encouraged as I see the catalysts come together throughout the year. I think that will have a solid upward direction on our entire business. And then also at the same time, you know, I expect we'll just -- we'll outperform whatever that is.

Kurt Hallead -- RBC -- Analyst

Okay. So, not going so far to guess up up or down, but outperform whatever happens to the marketplace? Okay, that's fair commentary. And Jeff, I was wondering, as you look at the International dynamics, right, you have some regions that you are going to grow off a very low, low base, and you have other areas where you talk about taking some big projects at lower margins. And how long do you think it takes for those larger projects to start to see that margin improvement, and do you think you'll be able to start to demonstrate that in the second half of '19 or do you think it'll take all of '19 and into '20 before you -- before you get to that point?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. Look, I think there's a lot of moving parts at this point in time. I'm excited about those countries that are recovering and those geographies that are recovering. It will take some time to work through kind of the wall of new contracts that were picked up through '18 and that will unfold in '19. I'm not going to give you a date on when we think that works out. I just know that we're working that all the time and I'm really encouraged, and again, that's part of what drives the investment in drilling tools that I'm talking about and then also the opportunities that we see to drive better returns and better margins on some of these contracts won but does just take time.

Kurt Hallead -- RBC -- Analyst

Okay. And then last one to follow up, just use of cash. You, obviously, identified a reduction in capital expenditures. As you look at the prospect for share repurchase vis-a-vis M&A, which looks more attractive to you at this point?

Jeff Miller -- Chairman, President and Chief Executive Officer

Yes, look, I mean, Kurt, our approach to excess cash deployment hasn't changed, right? We're focused on returning capital to shareholders. We're --also know that we want to work -- continue to reduce our debt levels. And then, obviously, if there are opportunities out there from an M&A perspective that meet our returns thresholds, we will do that, but it's all going to still be through the lens of returns. And so, we may be opportunistic when it comes to share buybacks, but we're -- we've got a track record, at least over the course of last year, where we were able to do all three, and we expect to continue to do that moving forward.

Kurt Hallead -- RBC -- Analyst

Got you. I appreciate the color. Thank you.

Jeff Miller -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. And that is all the time we have for questions. I like to hand the call back over to management for any closing remarks.

Jeff Miller -- Chairman, President and Chief Executive Officer

Yeah. Thank you, Nicole. So before I close out the call, I would like to reemphasize a couple of points. First, I believe Halliburton is best positioned to take advantage of the North American catalysts that will drive completion activity and customer urgency as the year unfolds. Second, I'm confident in Halliburton's position internationally and how we will take advantage of the recovery that I see unfolding.

And finally, we will continue our focus on capital discipline, delivering strong cash flows and maximizing returns for our shareholders. Look forward to speaking with you again next quarter. Nicole, please close out the call.

Operator

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

Duration: 60 minutes

Call participants:

Abu Zeya -- Investor Relations

Jeff Miller -- Chairman, President and Chief Executive Officer

Lance Loeffler -- Executive Vice President and Chief Financial Officer

James West -- Evercore ISI -- Analyst

Jud Bailey -- Wells Fargo -- Analyst

Bill Herbert -- Simmons -- Analyst

Sean Meakim -- JP Morgan -- Analyst

Scott Gruber -- Citigroup -- Analyst

James Wicklund -- Credit Suisse -- Analyst

Chase Mulvehill -- Bank of America/Merrill Lynch -- Analyst

David Anderson -- Barclays -- Analyst

Kurt Hallead -- RBC -- Analyst

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