Halliburton (HAL) Q2 2023 Earnings Call Transcript

Halliburton (HAL -0.47%)
Q2 2023 Earnings Call
Jul 19, 2023, 9:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Halliburton Company second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Coleman, senior director of investor relations.

David Coleman -- Senior Director, Investor Relations

Hello, and thank you for joining the Halliburton second quarter 2023 conference call. We will make a recording of today's webcast available for seven days on Halliburton's website after this call. Joining me today are Jeff Miller, chairman, president, and CEO; and Eric Carre, executive vice president and CFO. Some of today's comments 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, 2022, Form 10-Q for the quarter ended March 31, 2023, 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.

Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our second quarter earnings release and in the quarterly results and presentation section of our website. Now, I'll turn the call over to Jeff.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Thank you, David, and good morning, everyone. In the second quarter Halliburton once again delivered strong results, driven by service quality, outstanding execution, and strong global demand for high-quality and high-performance oilfield services. Let's get right to the highlights. Total company revenue increased 14% year over year.

Operating income grew 41% compared to second quarter of 2022 adjusted operating income. International revenue grew 17% year over year with strong activity in all markets. North America revenue grew 11% year over year. Our completion and production division revenue grew 19% year over year, while margins expanded by 320 basis points.

Our drilling and evaluation division revenue grew 7% year over year, while margins expanded nearly 300 basis points. Finally, we generated $1.1 billion of cash from operations, $798 million of free cash flow, and repurchased approximately $250 million worth of shares during the quarter. Halliburton delivered an impressive first half of 2023. I'd like to thank our employees for these outstanding results.

Thank you for executing on our mainstays and strategy delivery. Now, let's turn to what I see in the markets and what I believe is driving this multiyear upcycle duration. Demand for oil and gas is strong as demonstrated by demand growth of 2 million barrels per day in the first half of the year compared to the same period last year. Oil and gas continues to demonstrate its critical role in the global economy, and meeting long-term demand requires sustained capital investment.

Commodity prices remain attractive. When I talk to customers they expect to work more, not less, and many of their activity plans extend into the next decade. Customers are settling in for a long-duration upcycle. Overall, I expect upstream spending to grow in 2023 and beyond.

For this year, I expect International and North America customer spending growth in the high teens and around 10%, respectively, compared to last year, despite reduced rig count and completion activity in the U.S. Now, let's start with our performance in the international markets. Revenue in the second quarter grew 17% compared to the same period of last year with strong activity across both divisions. Today, more than 20% of our tender pipeline represents incremental activity, which is as high as I can recall.

Equally important, in addition to strong growth in the Middle East and Latin America, we see steady growth in activity across the globe. In this environment, I expect quality services and equipment to remain tight and pricing to continue to improve. Halliburton's strategy is to deliver a profitable international growth. We are clear in how we do this, through differentiated technology offerings, selective contract wins, and a unique collaborative approach to working with our customers.

Our differentiated technology and digital portfolio deliver high quality and high performance to our customers in all markets. Here are some examples. Our drilling and LWD technology platforms deliver better reliability, data capture, and efficiency for our customers, while structurally expanding our margins. We build and deploy leading-edge drilling equipment that requires less capital to build and operate compared to the prior generation of equipment.

One example, for a customer in the Middle East, Halliburton achieved a world record for the longest well ever drilled, with a measured depth of over 51,000 feet using Halliburton's iCruise, iStar, and LOGIX technologies. Our leading position in completions technology is unlocking production for customers. We recently set another world record with the successful installation of the first 12-zone intelligent completion for a Middle East offshore customer using Halliburton's SmartWell technology on our e-completions platform. In our digital business, Equinor joins several other customers in selecting Landmark's DecisionSpace 365 as their standard subsurface data interpretation tool.

During the second quarter, our Landmark software business closed on the acquisition of Resoptima, a leader in advanced ensemble modeling at the reservoir level. I'm excited about Resoptima's technology, both stand-alone and how it accelerates Landmark's roadmap for next-generation reservoir modeling technology. Now, turning to collaboration. Our value proposition to collaborate and engineer solutions to maximize asset value for our customers and our mainstay processes define how we consistently differentiate our services.

This is the source of our competitive advantage. Our value proposition creates an environment where our customers and Halliburton collectively perform better. A recent example of this is Halliburton and Var Energi's announcement of a long-term strategic relationship for drilling services. I expect we will demonstrate with Var, as we have with other customers, that our collaborative approach creates significantly better operational and financial performance for both the customer and Halliburton.

Our international strategy works. Our differentiated, cost-effective technologies and collaborative approach with customers empower us to strategically target work where we see a competitive advantage and a clear path to outperform financially. Turning to North America, we delivered a solid quarter. North America revenue grew 11% versus the same period last year, and margins were sequentially flat versus the last quarter.

Looking ahead into the second half, I expect overall market activity in North America will be slightly lower than in the first half. More importantly, I expect Halliburton's North America margins to remain strong for the balance of the year. Our results in North America clearly demonstrate the success of our strategy to maximize value. We do this through capital efficiency, differentiated technology, and alignment with high-quality customers.

During our last call, I outlined the steps we took in North America land to maintain pricing and deploy service capacity to attractive return opportunities or retire old equipment to further accelerate Halliburton's transition to our electric fleets. Executing on our strategy during the second quarter, we deployed additional Zeus fleets on multiyear contracts while retiring additional diesel equipment. Demand for our Zeus e-fleets is strong. In fact, during the second quarter we signed more multi-year Zeus contracts than in any prior quarter.

The multi-year duration of these contracts provides both stability and secure economic returns, which furthers my confidence in the strength of our margins. I continue to be impressed by the performance of our Zeus e-fleets and the optimization and efficiencies that come with scale. Our current system is the result of multiple iterations over several years and our continuous improvement processes. Every element of the value chain, from design and manufacturing to operations and maintenance, is continuously improved.

Our advances in pump technology and system design result in higher horsepower density and pump efficiency. With Octiv, we are automating equipment operation for consistency and reliability. We work to be the best at getting better. Today, Zeus is a fully integrated system.

We deliver new equipment on time that works right out of the box and on average this year. Our e-fleets pumped over 10% more hours than our high-performance diesel fleets. For our customers, these improvements mean better performance and even lower total cost of ownership. For Halliburton, these improvements mean we further widen the moat around our growing e-fleet business.

In all markets, international and North America, I believe our strategies yield improved financial results. Let's look at the steady growth and margin expansion in D&E. This is the result of a structural change and technology overhaul that began several years ago. Our leading drilling platforms are lower cost and higher performance than the prior generation, which drives higher asset velocity and higher returns.

In our testing business, our FloConnect surface well testing service provides a safe, efficient, and automated platform to our customers, while lowering our overall operating costs. In our wireline business, our Xaminer platform provides high quality reservoir data, reduces subsurface uncertainty, and allows us to win high-value exploration work. Finally, across all product lines, automation and remote operations are beginning to transform service delivery, driving higher quality and reliability, while lowering total cost of service delivery. Looking through any quarterly fluctuations and seasonality, I fully expect D&E margins will continue to expand over time.

Our strategy also generates strong free cash flow, and our capital return framework returns cash to our shareholders. I expect over 50% of free cash flow will be returned to shareholders this year. I am pleased with where we are today. In the last 18 months, we retired $1.2 billion of debt, strengthening our balance sheet; twice increased our quarterly dividend, which forms the stable foundation of our capital return framework; and finally, repurchased approximately $600 million worth of shares, including approximately $250 million this quarter.

I fully expect that the execution of our strategy in this long-duration upcycle will deliver better returns, more free cash flow, and more cash back to shareholders. Now, I'll turn the call over to Eric to provide more details on our financial results. Eric?

Eric Carre -- Chief Financial Officer

Thank you, Jeff, and good morning. Before I begin the financial review, I'd like to discuss one item. In the second quarter, we kicked off our SAP S4 upgrade and recorded a $13 million expense, or about $0.01 per diluted share, in our Q2 operating results. Future expenses will be both included in our operating results and in our quarterly guidance.

Here are a few more details on the upgrade. This upgrade will take place over the next two and a half years, concluding around Q4 2025. We expect it to provide efficiencies, cost savings, and advanced analytics that will benefit Halliburton and our customers. The total project investment should be approximately $250 million; $50 million this year, and $100 million in each of the next two years.

Upon completion, we expect significant ongoing savings which will pay back the investment in about three years. Now, let me move on to our quarterly results. Our second quarter reported net income per diluted share was $0.68. Excluding the effect of the transaction in Argentina, our adjusted net income per diluted share was $0.77.

Total company revenue for the quarter was $5.8 billion, a 2% sequential increase, while operating income was $1 billion, a sequential increase of 4%. Operating margin for the company was 17.4% in the second quarter, a 329 basis points increase over second quarter of 2022 adjusted operating margin. These results were primarily driven by strong international activity across both divisions, along with improved pricing. Beginning with our completion and production division, revenue in the second quarter was $3.5 billion, a 2% sequential increase, while operating income was $707 million, an increase of 6% sequentially.

C&P delivered an operating income margin of 20%. These results were due to increased activity from multiple product lines in international markets and higher artificial lift activity in North America. In our drilling and evaluation division, revenue in the second quarter was $2.3 billion, a sequential increase of 2%, while operating income was $376 million, a sequential increase of 2%. D&E delivered an operating income margin of 16%.

These results were driven by higher drilling activity and increased fluid services in key regions including Middle East and Latin America, partially offset by seasonal roll-off of software sales across multiple regions. Now, let's move on to geographic results. Our second quarter international revenue increased 7% sequentially due to solid product sales, activity increases, and pricing gains across multiple product lines. These results were impacted by lower software sales in the eastern hemisphere.

In North America, revenue in the second quarter was $2.7 billion, a 2% decrease sequentially. This decline was primarily driven by decreased stimulation activity in U.S. land, partially offset by increased artificial lift activity in U.S. land and higher activity across multiple product service lines in the Gulf of Mexico.

Latin America revenue in the second quarter was $994 million, a 9% increase sequentially, resulting from higher completion tool sales in Brazil and improved activity across multiple product service lines in Mexico and Argentina. Partially offsetting this increase is reduced activity in the Caribbean across multiple product service lines. Europe/Africa revenue in the second quarter was $698 million, a 5% increase sequentially. This improvement was primarily driven by increased fluid services across the region and higher completion tool sales in Angola and Norway.

Middle East/Asia revenue in the second quarter was $1.4 billion, a 6% increase sequentially, largely resulting from higher completion tool sales in Saudi Arabia and higher wireline activity, drilling services, and stimulation activity in the region. This improvement was partially offset by decreased project management activity in Saudi Arabia. Moving on to other items, in the second quarter, our corporate and other expenses was $59 million. For the third quarter, we expect our corporate expenses to increase by about $5 million to $10 million.

As noted earlier, in the second quarter we spent $13 million or about $0.01 per diluted share on SAP S4 migration, which is included in our operating results. For the third quarter, we expect these expenses to be approximately $20 million or about $0.02 per diluted share. Net interest expense for the quarter was $92 million. The increase this quarter was primarily related to the reduction of interest income as a result of the Argentina transaction.

For the third quarter, we expect this expense to remain approximately flat. Other net expense for the quarter was $32 million. For the third quarter, we expect this expense to remain approximately flat. Our effective tax rate for the second quarter came in at approximately 21.3%.

Based on our anticipated geographic earnings mix, we expect our third quarter effective tax rate to increase by approximately 50 basis points. Capital expenditures for the second quarter were $303 million. We anticipate that for the full year, capital expenditure will be approximately 6% of our revenue. Our second quarter cash flow from operations was $1.1 billion and free cash flow was $798 million.

We expect to generate free cash flow for the full year 2023; that is 30% to 40% higher than last year. Finally, we repurchased $248 million of our common stock during the second quarter. Now, turning to our near-term operational outlook. Let me provide you with some comments on how we see the third quarter unfolding.

In our completion and production division, we anticipate sequential revenue to be essentially flat with the second quarter and margins to remain approximately flat. In our drilling and evaluation division, we anticipate sequential revenue to increase in the low single digits and margins to increase 25 to 75 basis points. I will now turn the call back to Jeff.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Thanks, Eric. Let me summarize our discussion today. Our international business is growing at a strong pace across all regions. I expect our differentiated technology offerings, selective contract wins, and our unique collaborative approach to working with our customers to deliver higher international margins and growth for Halliburton.

Our strategy to maximize value in North America is driven by capital efficiency, differentiated technology, and alignment with high-quality customers. I expect this will allow us to generate solid financial performance. I expect that the execution of our strategy in this long-duration upcycle will deliver better returns, more free cash flow, and more cash back to shareholders. And now, let's open it up for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question will come from the line of David Anderson with Barclays.

David Anderson -- Barclays -- Analyst

Hi. Good morning, Jeff.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Good morning, David.

David Anderson -- Barclays -- Analyst

So, North America's slowing down a bit. International's starting to accelerate, as we expected. But I was wondering if you could, perhaps, take a bit of a step back and talk about how you see the primary markets trending in the next kind of 12 to 24 months in terms of NAM, Middle East, and offshore. Maybe set LATAM aside, which has been a steady growth market.

I guess my question is, in terms of the cadence, how do you see the trajectory of each of these markets playing out? You lowered NAM spend. I think you were saying 10% up from down from 15%. So, is that kind of flattish in the second half of the year? And then, how do you see the ramp up in the Middle East and then the timing of offshore? I know it's a lot, but maybe kind of just bigger picture, how you see those markets trending, if I may.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Certainly. And look, I'm as confident as I have ever been in the duration -- the long duration of this cycle. And that's rooted in attractive commodity price and really the growth in demand for oil, so I'll start there. You know, I think the offshore piece of this, we're super excited about it.

You know, if we include Gulf of Mexico, we're eclipsing -- 50% of our revenues internationally are offshore. And so, all of our service lines are represented there. I think the cadence, as I look over the next year, let's say year or so, I mean it just takes time to get this work underway. I'm just back from a trip, and we were looking at projects that, you know, they have to get rigs, get plans, get agreement from governments.

But it's starting, and I expect it continues to build into '24 and beyond. I mean, these are the kinds of projects that, you know, take a decade to do and so, you know, Middle East, I see the same thing. The number of rigs being mobilized in the Middle East, that takes some time to do. But we are beginning to see it.

We are seeing it. But my view is that we'll continue to build over the next 12 or 24 months. Coming back to North America, you know, I gave you an outlook on the second half of the year. But I think what's most important is, when I look into '24, you know, I mean commodity markets are getting more constructive, oil prices firming up, gas seems to have found its footing you know and expect that ramps.

We're seeing some consolidation with customers, and that means that bigger customers do more planning through the cycle. They are committed to executing plans over a longer term. And service intensity in North America never lets up. In fact, it only gets harder and you can't -- you got to work harder just to stand still.

So, all of this is constructive for Halliburton's business as I look out into '24 and beyond. And, you know, and some of that in North America, I mean just that it's backed up by the pace of e-fleet contracts that we're seeing. We've had more contracts last quarter. We've even signed another one this quarter.

And that's really for work that starts in '24 and goes '24, '25, '26. So, you know, there are a lot of reasons that I see '24 looking super strong for us.

David Anderson -- Barclays -- Analyst

And then, Jeff, maybe we can just kind of get into the heart of kind of where a lot of the chatter has been during the quarter. Obviously, rig count has been falling. We've been hearing about pricing and pumping getting softer. Of course, a lot of this is coming from your competitors who would love to pay less for these services.

Can you give us some insight in kind of what you're seeing in the pricing trend? Is the softness kind of really stuck on the Tier 2 side? In your comments, you talked about your Zeus fleets holding up. Is the Tier 4 holding up? What do you see on the competitive pricing side? If you can just kind of give us some more context here. Because we just kind of hear these kind of generalized comments, and I have a feeling there's more to it. I was wondering if you could provide some more context, please.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Well, I think that -- you know, I've told you what we're doing, which is retiring older equipment and transitioning to electric. And so, I think that's an important factor. We really, you know, don't see, we don't participate in the bottom part of that market particularly at all, really where that's the spot type market. Most of our work -- I'd say over 70% of our work is with large privates and publics and so -- you know, these are customers that execute their plans, and they do execute their plans.

And from our perspective, you know, the performance -- we continue to see our performance improving, OK, even as, you know, we add electric, but also even on our diesel fleets. And, you know, differentiated service performance, technology is getting better, I mean those are things that drive not only margins, but they are also part of the dialogue around, you know, what's it take to actually run a high-performing business that requires engines, transmissions, and people. And, you know, we really haven't seen any deflation in those things.

Operator

Our next question comes from a line of Arun Jayaram with JPMorgan.

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

Hey, Jeff, maybe just a follow-up to David's question, one question we get is, you know, how do softer conditions called in the spot market influence pricing on your dedicated fleets or as you start some of your price negotiations on 2024 in North America?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Well, look, I think that -- you know, again, we've got a little exposure to the spot as I described. I would say broadly, you know, as we look ahead, high-performance, high-quality services really matter and we see a lot of bifurcation there. And we're going to continue with our e-fleet rollout, which is sort of a whole different category of service. It's actually lower cost or better performance for our clients, but also lowers our total cost of ownership.

And so, you know, I would say we're planning to deliver high-quality service, and we really don't see any point in burning up equipment with no margins. That's not a good direction. It actually has longer-lasting impacts if surface equipment isn't taken care of.

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

OK, fair enough. And, Jeff, I wanted to get your thoughts on offshore. Obviously, one of the trends the market has been observing is just strength in offshore markets. Could you talk about how it's positioned from a product line perspective offshore and what you're seeing perhaps in the Gulf of Mexico to mitigate maybe some of the risk of lower activity in North America?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Well, look, we're heavily levered toward the offshore business. In fact, all of our service lines participate in our offshore business. And we've got leading positions in cementing and HCT. You know, our drilling business, we've talked a lot about where we're going with drilling and wireline.

And so, you know, that's an important business for us. It is higher-service intensity, which means that it takes more equipment to do. And so, we really like that. I expect the Gulf of Mexico continues to strengthen.

And again, we talked about last quarter, sort of the percentage of our offshore international business anyway as a percentage, you know, continues to grow. And so, I think, you know, that the offshore business is going to be very important for Halliburton, and the Gulf of Mexico, and all around the world.

Operator

Our next question comes from a line of James West with Evercore ISI.

James West -- Evercore ISI -- Analyst

Hey. Good morning, Jeff. Good morning, Eric.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Morning.

Eric Carre -- Chief Financial Officer

Good morning, James.

James West -- Evercore ISI -- Analyst

So, Jeff, with your Zeus rollout, your e-fleet rollout here, you talk to the visibility or good visibility into '24 or even '25 at this point. As these e-spreads come to the markets, are you kind of one-for-one retiring, you know, the Tier 4 assets that you have? Or do those continue to work and so it's a net increase in horsepower?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Look, it's not a perfect science in terms of one-in, one-out, but it's generally one-in, one-out, and over time. And so, you know, the type of equipment, for example, that we would retire is typically higher cost to maintain. And so, when we retire a fleet, we sort of blow the parts back into the current fleet, and that lowers the cost or improves the margins of the existing fleet. But, yeah, we're replacing -- say replacing -- we're adding equipment only as it's demanded by clients, so that's the difference.

Eric Carre -- Chief Financial Officer

Right.

Jeff Miller -- Chairman, President, and Chief Executive Officer

We're not building it to replace it. We're building it for contracts where there is commitment to, you know, return the capital and also the return on capital inside of the contract. And so, that's what's driving the pace of replacement.

James West -- Evercore ISI -- Analyst

OK, OK, that makes sense. And then, on the international and particularly offshore side, as these rigs are mobilizing and getting set up, governments, signing contracts, etc., and the companies your customers are sourcing, the service equipment and service products, what's the conversation like with them around pricing and kind of -- or is there even really much of a concern about pricing because they just need to get the equipment?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Well, I think that we're seeing, you know, pricing moving up, whether it comes in the form of a tender or a dialogue. And a lot of that is around tightness. It's also around efficiency and performance of our equipment. You know, we've just done a lot to structurally overhaul and technically overhaul a lot of our drilling business, and I talked a bit about some of the wireline things that we're doing.

So, you know, the dialogue is certainly price is up and it comes in a few forms, whether it's a negotiation or a discussion or in some cases we call and say we just don't have it, which is, again, driving prices up.

Operator

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

Neil Mehta -- Goldman Sachs -- Analyst

Yeah, thanks so much. Jeff, maybe I'll start with you to talk a little bit about return of capital to shareholders, and I'll let you go anywhere you want with this. You did buy back $250 million worth of stock in the quarter, and you've been pretty steady in terms of that dividend coming back to shareholders as well. As you think about the repurchase program, how aggressive do you intend to be? Do you view this as more of a radical program versus -- or an opportunistic one?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Look, I think that we've committed to return at least 50% free cash flow back to shareholders. The reality is it's going to be more than that. I think what we do is we build a base case around what we return to shareholders and then we're able to flex up from that. And I think that's, you know, some of what you're seeing.

Eric, do you want to add to that?

Eric Carre -- Chief Financial Officer

I think it's -- you covered it well, I think. The -- I mean, the main focus in the organization right now is to continue to generate free cash flow. That's really the first priority, and ensure that we have enough -- and actually, we're generating enough free cash flow right now to continue to buyback share, but also to continue to work and further strengthen our balance sheet. So, if we look forward, we intend to do both, even though the buyers right now is clearly on continuing to buy back more shares.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks, Eric. And the follow-up is for you. It's just, I hear you made some comments around this in the script, but any Q3 considerations you want us as a market to keep in mind as we think about, you know, building this sequential model into next quarter.

Eric Carre -- Chief Financial Officer

No, I think we covered it in the prepared remark. And Jeff mentioned it as well as you look throughout the remainder of the year. I know there's a lot of question on North America, so maybe I'll repeat what we indicated, which is H2 is going to be a little lower than H1 for North America. Q3 is a bit down compared to Q2.

And we're expecting Q4 to be flat relative to Q3, considering there are some holidays and seasonality as well. So, you combine that with the guidance by division and I think it gives you a really good perspective on how we see the second half of the year unfolding.

Operator

Our next question comes from the line of Scott Gruber with Citigroup.

Scott Gruber -- Citi -- Analyst

Yeah, I wanted to say on the second half outlook, you know, typically frac activity does slow down into the holiday season. But the gas forward curve is actually quite encouraging today, Jeff, as you mentioned in your conversation earlier. The conversations with clients today, are they suggesting that, you know, they are going to bring back some gas completion activity later this year? Or is that more likely to wait until next year after the budget reset process?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Look, I think that -- you know, I'm not going to try to call tops and bottoms, I'll let others do that. But I think that, you know, the outlook I described for 2024 is consistent with what you just described. And so, when we see that, I don't have precision around the date. But there's no question that gas is firming up and that there'll be LNG takeaway and that the gas market will be busy.

It's a question of the date. But I expect, you know, that build in '24, could it come sooner? Obviously, it could and I would say oil price is quite constructive today as well, which may bring some smaller players back into the market. But all of these things structurally from a cycle standpoint are very, very positive. And as I look at '24, sometime between now and there, we see, you know, improving activity.

Scott Gruber -- Citi -- Analyst

Got it. That makes sense. Yes, and I did want to touch on the oil side as well. Obviously, last year, well productivity was down.

And that was starting this conversation around, you know, the need just to drill more wells to kind of offset that productivity loss. This year we do seem to be at maybe a localized plateau on well productivity on the oil side in the U.S. But is that part of the conversation here with customers that, you know, over time that they are going to have to be drilling more wells in the U.S. given that productivity decline? Is that kind of top of mind as they kind of start to think about '24 needs? Or is that a kind of off the horizon still?

Jeff Miller -- Chairman, President, and Chief Executive Officer

No, I mean let me frame that differently. I think that this is my point around service intensity, meaning it takes more work to produce the same over time unless there are step changes in terms of either efficiency or insight. And so, you know, we talk about our smart fleet offering quite often. But the reality is that's part of our technology portfolio to help customers better understand productivity of rock and where the frac is going and how to design fracs that can be more productive over time, so I think that's an important step.

But there is no question when we think about North America, and we even saw that during the COVID when the pace at which North America declined following sort of the near slowdown or near stoppage in North America. And so, you know, I think those are well understood by the market and our clients. And so, when I think about the way forward in North America, that features in it and is clearly part of our view as to why, A, there'll be more activity over time even to stand still. And further why e-fleets in our case are so valuable because they really do help clients achieve better productivity and lower costs.

So, I think that that's one of the reasons we're so focused on that, and I think that's how it plays out.

Operator

Our next question comes from the line of Luke Lemoine with Piper Sandler.

Luke Lemoine -- Piper Sandler -- Analyst

Hey. Good morning, Jeff and Eric.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Morning, Luke.

Luke Lemoine -- Piper Sandler -- Analyst

Jeff -- Morning. Jeff, nice job on that North America margins in 2Q, I mean those flat, and you talked about those remaining strong for the balance of the year. It kind of sounded like you're not expecting these to be materially different from the first half. Is that correct?

Jeff Miller -- Chairman, President, and Chief Executive Officer

That's correct.

Luke Lemoine -- Piper Sandler -- Analyst

OK. And then, Eric, 2Q D&E, margins were better in your guide. Can you maybe walk us through what changed relative to your expectations?

Eric Carre -- Chief Financial Officer

Yes, I think -- I mean there's a lot of moving parts in the D&E margins. I think we just delivered better across the board in most product lines and in all of the regions. There's really not a lot more to say about that solid execution from all product lines across the globe.

Luke Lemoine -- Piper Sandler -- Analyst

OK, got it. Thanks a bunch.

Operator

Our next question comes from a line of Stephen Gengaro with Stifel.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Hi. Can you hear me?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Yes.

Eric Carre -- Chief Financial Officer

Yes.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Oh, sorry. I got cut off. Thanks. Good morning, everybody.

Two things for me. The first is, we've -- and we've heard from others that, you know, the consolidation in the U.S. frac business and then just the better behavior by you and many others has led to a different dynamic in the business. I'm just curious, as you've seen a little bit of obviously rig count softness and frac spreads have come off a bit, are you seeing -- can you visibly see any different approach to pricing across the industry yet? Is it too early to tell? Just curious if there's any proof of concepts here yet.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Look, I think there is quite different, and I think it's different along a couple of dimensions. Number one, quite different in the sense of the type of equipment that we are putting into the market with e-fleet. So, that's a very different dynamic than we've seen in the past. And I think that the pull for those from customers is meaningful.

And so, that's one key difference. And I think from the other perspective, the bifurcation and performance is an important point. And I think that we've seen quite a difference in our performance, and that still matters. In fact, that matters a lot.

And I think that, you know, sort of the overall -- we've always replaced our equipment, invested in our equipment and technology. But I think that, you know, the idea that equipment runs in perpetuity or that it can be run to the ground and then somehow rebuild is not realistic. And so, I think there's some understanding around that today that there probably wasn't before.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Thank you. And when you -- you touched on this a little bit earlier, but when we hear from E&Ps and just industry data in general that well quality is curating a bit. Is that a net positive, you think, for the completion side of your business? How do you think about the impact that has? Or is it kind of too gradual to really jump out?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Yeah, look, I mean, what that drives is more technology and more service intensity, both. I mean, that's the upshot of what you just described for our customers, and we see that. And so, we're -- you know like you said, I'm quite confident about -- I'm confident in North America's contribution to the overall oil and gas supply for the world. It's important.

And sustaining mass is going to require investment and a lot of technology and a lot of just repetitions. So, I think it's setting up very well for Halliburton.

Operator

Our next question comes from a line of Marc Bianchi with Cowen.

Marc Bianchi -- Cowen and Company -- Analyst

Hi. I just want to ask one more on sort of the North America outlook for the back half. I know it's been asked several times, but just because so many people seem to be focused on that. I think people are surprised by fourth quarter being flat quarter over quarter and margins seemingly holding in.

Would you anticipate that overall the profit for Halliburton or the EPS should be flat to up in the fourth quarter versus the third quarter?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Yes. I mean, we're not going to guide Q4. But directionally, everything is intact.

Marc Bianchi -- Cowen and Company -- Analyst

Yes. OK, great. Thanks for that Jeff. The other one I had is just a bit of a modeling question on the corporate line for you, Eric, because we've got this new software element that we need to include.

So, if I take those two together, the corporate plus the software, it looks like we should be something in the mid-80's of a negative number, and then that should be sort of on a $20 million to $25 million run rate beyond third quarters. Is that the right way to think about that software impact?

Eric Carre -- Chief Financial Officer

Yeah, I mean we guided the two separately, so as to give you clarity as to what they are. So, we guided corporate going into Q3 to be $5 million to $10 million, up from Q2, that's essentially a timing issue. We were a bit under guidance in Q2, so that gives you the corporate number. And then in terms of SAP, which we guided as a separate line, we guided to $20 million or about $0.02.

And what we'll do on that one, we give you the yearly number, so $50 million this year, $100 million next year, $100 million the following year, so you can kind of run your models on the yearly basis. And then, we'll give you more color quarter to quarter. Because some of it depends on how the rollout is happening right. So, we want to do that on a quarter-to-quarter basis.

Operator

Our next question comes from the line of Kurt Hallead with Benchmark.

Kurt Hallead -- The Benchmark Company -- Analyst

Hey. Good morning, Jeff and everybody.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Good morning.

Kurt Hallead -- The Benchmark Company -- Analyst

Hey, Jeff, I'm kind of curious, on the international front right, just are you seeing the prospect of maybe an acceleration in an activity, whether that be in the Middle East or Latin America maybe relative to the beginning part of the year. I know that there is some questions about the, you know, the OPEC production cuts, and that may be having a negative impact on activity. But I'm kind of curious as to whether that -- you know, there's a situation in the Middle East where there's a greater sense of urgency and maybe a push to move some projects a little more quickly.

Jeff Miller -- Chairman, President, and Chief Executive Officer

OPEC cuts absolutely do not have an impact on activity. I'm being crystal clear around that. You know, these are customers with plans that are meeting global demand, and it is unrelated to cuts and OPEC. I would say that the growth, I wouldn't describe it as an acceleration, I would describe it as continued growth, and that's very positive.

That's a good thing because that's consistent with the long-duration nature of this cycle. So, it's not a spike to come at some point in time in the future to then level out. I think what we're going to continue to see is steady growth in activity, kind of like we've seen. Although, you know, does the pace pick up? It might some in fits and starts as big projects get started.

But I think, overall, this is a great setup for Halliburton in terms of timing and pacing and absolutely consistent with how we see the length of the cycle. Meaning, it's going to take quite a period of time as barrels are invested in and reinvestment is made.

Kurt Hallead -- The Benchmark Company -- Analyst

OK, that's great. I appreciate that color. Now, maybe then focusing again on the North American market, you've given some clear deep expectations on what you see there. With the fact that you guys are getting rid of older equipment, focusing on e-fleet, you mentioned a couple of long-term contracts, how do you see the prospects for Halliburton to continue to outpace the market if the market is just going to be flat?

Jeff Miller -- Chairman, President, and Chief Executive Officer

Well, I think I've described what we're going to do, and I think that, you know, sort of the -- we're focused on what we're doing in terms of -- you mentioned e-fleet, but that's an important thing, and that's an important opportunity for Halliburton, it's somewhat unique for Halliburton. I also believe that it's -- you know, as I look out into the future, as I said I see -- we talked to extensively about service intensity and technology. And I think both of those are going to be very high demand as we get into '24. And I would say for what we do, it's an high demand now.

And so, you know, I think the long term for North America clearly points toward what we do uniquely at Halliburton. And so, I feel pretty confident about that.

Operator

That concludes today's question-and-answer session. I'd like to turn the call back to Jeff Miller for closing remarks.

Jeff Miller -- Chairman, President, and Chief Executive Officer

Yes, thank you. And thank you all for participating in today's call. Let me close out the call with this. Halliburton delivered an impressive first half of 2023, and I fully expect that the execution of our strategy in this long-duration upcycle will deliver better returns, more free cash flow, and more cash to shareholders.

I look forward to speaking with you next quarter. Please close out the call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

David Coleman -- Senior Director, Investor Relations

Jeff Miller -- Chairman, President, and Chief Executive Officer

Eric Carre -- Chief Financial Officer

David Anderson -- Barclays -- Analyst

Arun Jayaram -- JPMorgan Chase and Company -- Analyst

James West -- Evercore ISI -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Scott Gruber -- Citi -- Analyst

Luke Lemoine -- Piper Sandler -- Analyst

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Marc Bianchi -- Cowen and Company -- Analyst

Kurt Hallead -- The Benchmark Company -- Analyst

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