Q3 2025 Earnings Call Transcript

Good morning, and thank you for standing by. At this time, I would like to welcome everyone to the Halliburton Company's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to David Coleman, Senior Director of Investor Relations. Please go ahead.

Hello, and thank you for joining the Halliburton Third Quarter 2025 Conference Call. We will make the recording of today's webcast available for 7 days on Halliburton's website after this call. Joining me today are Jeff Miller, Chairman, President and CEO; and Eric Carre, Executive Vice President and CFO. Some of today's comments may include forward-looking statements that reflect Halliburton's views about future events.

These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2024, Form 10-Q for the quarter ended June 30, 2025, 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 third quarter earnings release and in the quarterly results and presentation section of our website. Now I'll turn the call over to Jeff.

Thank you, David, and good morning, everyone. I'm pleased with Halliburton's third quarter performance. I will begin today's discussion with our highlights from this quarter. We delivered total company revenue of $5.6 billion and adjusted operating margin of 13%.

International revenue was $3.2 billion, a decrease of 2% year-over-year. North America revenue was $2.4 billion, flat year-over-year. During the third quarter, we generated $488 million of cash flow from operations, $276 million of free cash flow and repurchased approximately $250 million of our common stock. And finally, we took cost reduction actions that we expect will save approximately $100 million per quarter going forward.

Before we dive into the geographic results, let me talk about the bigger picture for oil and gas. We share the well-accepted view that oil and gas demand will continue to grow over the long term. We also know there is a tremendous amount of investment required to maintain production at current levels, let alone to sustainably grow production. Recent estimates are that 90% of upstream spending simply offsets natural declines, underscoring the requirement for ongoing oil and gas investment.

Near term, operators are navigating volatile commodity prices as OPEC+ spare capacity returns and trade concerns persist. The impact is most apparent in North America, where we expect customers to maintain the cautious posture they adopted in the second quarter. In international markets, activity remains broadly steady from here as we look forward to 2026. In this environment, we took steps to address the near-term conditions. First, we improved our cost structure by rightsizing our operations and overhead, which we expect will reduce quarterly labor costs by roughly $100 million beginning in the fourth quarter.

Second, we reset our capital expenditures target for next year. And as a result, I expect capital spending in 2026 to decline by almost 30% to around $1 billion. Third, we are actively managing our deployed capital, and we will continue to idle, relocate or retire equipment that does not meet our return thresholds. Finally, and most importantly, we took these steps while maintaining a strong focus on our technology development, our growth engines and our value proposition.

I am super confident in the Halliburton's team, our ability to execute and the strength of our competitive position. Near-term conditions will not change our focus on delivering value for our customers and leading financial performance for our shareholders. Now let's turn to our geographic results. I'll start with the international markets, where Halliburton delivered quarterly revenue of $3.2 billion, roughly flat to the second quarter.

For the fourth quarter, we expect international revenue to increase 3% to 4% on roughly flat activity levels with typical seasonal software and completion tool sales. Let me share some progress on our international growth engines, those businesses where we expect growth outperformance by Halliburton relative to the oilfield services market. These growth engines, production services, artificial lift, unconventionals and drilling are central to our international strategy. We made solid progress this quarter, and here are a few updates.

In production services, we won a major 5-year contract from ConocoPhillips in the North Sea. To deliver this contract, we will transform a conventional offshore service vessel into an advanced stimulation platform, complete with the first deployment of OCTIV automation to an offshore environment. This demonstrates our leading technology and execution that maximizes asset value for our customers. In artificial lift, Kuwait Oil Company named Halliburton Service Partner of the Year and awarded Halliburton a multiyear ESP contract, which further strengthens our position in Kuwait.

Additionally, in Colombia, Ecopetrol awarded Halliburton ESP contracts in 9 of 11 fields. In international unconventionals, we saw further adoption of our leading completions technology and set a new continuous pumping record in the Vaca Muerta. I'm encouraged by our technology penetration in this market as we deliver leading performance and maximize asset value. And finally, in Drilling, we introduced iCruise Force in the UAE and Qatar with strong results in both markets. iCruise Force maximizes rate of penetration while utilizing advanced formation evaluation tools delivering significant value where logging requirements and rig costs are high.

Beyond our growth engines, I am pleased with the performance of our international business. Our value proposition to collaborate and engineer solutions to maximize asset value for our customers continues to win work and deliver results. We see this most clearly in deepwater. During the quarter, I met with customers in Latin America and Europe to recognize the performance we've achieved through our collaborative model.

Together, we are reducing drilling times, improving well placement and deepening our collective competitive advantage. The strength of our value proposition and the breadth of our technology offerings underpins my confidence in our offshore position, where we have leading technologies in formation evaluation, drilling automation, drilling fluids, cementing, well completions and intervention. Offshore is roughly half our revenue outside of North America land today, and I expect that share to grow. To conclude my thoughts on the international market, our value proposition is winning with customers.

We are demonstrating differentiated performance, both on and offshore, and our growth engines are delivering. I am confident in the future of our international business. Now let's turn to North America. Our third quarter revenue of $2.4 billion was above our expectations with 5% sequential growth driven by less-than-anticipated completions white space and strong activity in the Gulf of America.

During the quarter, we executed our strategy to maximize value in North America. We stacked uneconomic frac fleets, expanded our leading automation offerings and executed cost-out initiatives to reduce our operating costs and overhead. Looking to the fourth quarter, we expect greater than typical white space and seasonal activity slowdowns to result in approximately 12% to 13% lower sequential revenue. Despite softer activity in the near term, technology demand remains strong across both divisions as our customers are focused on maximizing the value of their capital dollars.

In completions, ZEUS is the recognized leader in technology and performance. Year-to-date, we have introduced 2 additional ZEUS electric fleets under contract. And today, over half of our active North America fleet is ZEUS, an important milestone. We also see strong demand for our ZEUS IQ closed-loop fracturing offering.

We expect meaningful growth of this service in 2025 and 2026, deepening our competitive advantage and reinforcing our leadership in fracturing technology, efficiency and execution. In Drilling Services, we delivered solid sequential and year-on-year growth driven by iCruise. In the third quarter, we introduced the 7-7/8 iCruise CX, a highly sought-after hole size for the Permian Basin with outstanding results. The system completes curve and lateral sections in a single run, replicating the proven success we have achieved in other hole sizes.

This new offering broadens the iCruise product portfolio. And given the system's consistent performance and our advances in telemetry, automation and rig integration, I am confident we will see rapid adoption by our customers and continued growth in our North America Drilling Services business. To close, North America is a tough market today. We are taking steps and executing our strategy to maximize value.

This means we are prioritizing returns, technology leadership and working with leading operators. I am confident that our strategy execution will drive further success. Now let me address our investment in VoltaGrid. As disclosed in our Form 8-K filed on October 14, Halliburton owns approximately 20% of VoltaGrid on a fully diluted basis.

We invested early and increased our ownership over time because distributed power is a critical enabler for electrified oilfield services and a growing opportunity set beyond the oilfield. Last week, VoltaGrid announced an agreement to deploy 2.3 gigawatts of generation capacity to support Oracle's next-generation artificial intelligence data centers. This expands VoltaGrid's contracted backlog, broadens its revenue base, extends a line of sight to multiyear growth and validates VoltaGrid's position as a leading provider of long-term behind-meter power solutions. I am also pleased to announce that we have signed an agreement with VoltaGrid to be their international partner for delivering distributed power solutions for data centers outside of North America.

Through this agreement, we will combine Halliburton's global reach, design, manufacturing and operating capabilities with VoltaGrid's distributed power expertise to deliver reliable power at scale. I expect this will be an important long-term growth opportunity for both VoltaGrid and Halliburton. Looking ahead, I'm excited by the opportunities for Halliburton and VoltaGrid. Before I turn the call over to Eric, let me close with this.

Oil price volatility is likely to impact the near-term macro environment. While I firmly believe a recovery in activity is inevitable, the timing and shape remain uncertain. Near term, we will execute our collaborative strategy and advance our technology, invest in our international growth engines, maintain cost and capital discipline, including idling equipment when returns are not economic and finally, remain focused on returning cash to shareholders. I'm excited about Halliburton, our strategy, our team, our customer relationships and our technology.

Our portfolio is highly differentiated. We lead in critical product lines, both on and offshore. Our value proposition is validated by the work we are doing today and the customer discussions we are having about future work. And finally, our leadership team is focused on executing the strategies that deliver strong financial performance.

With that, I'll turn the call over to Eric.

Thank you, Jeff, and good morning. Our Q3 reported net income per diluted share was $0.02. Adjusted net income per diluted share was $0.58. Let me start with some color on the charges taken this quarter. All the details are available in the press release, but a few items are worth highlighting. First, to address near-term market conditions, we took steps to reset our cost structure.

As a result, we recorded severance and fixed and other assets write-offs of $284 million. We expect cash operational savings from the actions we took to result in approximately $100 million in quarterly savings. Second, because of the changes to U.S. tax laws, we recorded an additional valuation allowance expense of $125 million. As a result of these changes, we also expect a lower effective tax rate on our U.S. taxable income going forward.

Now turning to operations. Total company revenue for Q3 2025 was $5.6 billion, an increase of 2% when compared to Q2 2025. Adjusted operating income was $748 million and adjusted operating margin was 13%. Our Q3 cash flow from operations was $488 million and free cash flow was $276 million. During Q3, we repurchased approximately $250 million of our common stock.

Now turning to the segment results. Beginning with our Completion and Production division, revenue in Q3 was $3.2 billion, an increase of 2% when compared to Q2 2025. Operating income was $514 million, flat when compared to Q2 2025, and the operating income margin was 16%. Increased completion tool sales and higher artificial lift activity in North America were partially offset by lower completion tool sales internationally and decreased well intervention services in the Middle East. In our Drilling and Evaluation division, revenue in Q3 was $2.4 billion, an increase of 2% when compared to Q2 2025. Operating income was $348 million, an increase of 12% sequentially and operating income margin was 16%.

These results were primarily driven by higher project management and improved wireline activity in Latin America, increased drilling services in North America and Europe-Africa and higher software sales in Europe-Africa. Partially offsetting these increases were lower activity across multiple product service lines in the Middle East. Now let's move on to geographic results. Our Q3 international revenue was flat when compared to Q2 2025. Europe-Africa revenue in Q3 was $828 million, flat sequentially.

Improved completion tool sales in Norway and increased drilling-related services in Namibia were offset by lower completion tool sales in the Caspian Area and lower fluid services across Europe. Middle East Asia revenue in Q3 was $1.4 billion, a decrease of 3% sequentially, primarily driven by lower activity across multiple product service lines in Saudi Arabia. Latin America revenue in Q3 was $996 million, a 2% increase sequentially. This increase was primarily driven by higher project management activity across the region and increased drilling services in Argentina.

In North America, Q3 revenue was $2.4 billion, a 5% increase sequentially. This increase was primarily driven by improved stimulation activity in U.S. Land and Canada and higher completion tool sales and increased wireline activity in the Gulf of America. Moving on to other items.

In Q3, our corporate and other expense was $64 million. We expect our Q4 corporate expenses to increase about $5 million. In Q3, we spent $50 million on SAP S4 migration, which included milestone payments and is included in our results. For Q4, we expect SAP expenses to be about $40 million.

Net interest expense for the quarter was $88 million. For Q4, we expect net interest expense to increase about $5 million. Other net expense in Q3 was $49 million, which included $23 million due to the impairment of an investment in Argentina and a mark-to-market gain on a derivative. We expect Q4 expense to be about $45 million.

Our normalized effective tax rate for Q3 was 21.5%. Based on our anticipated geographic earnings mix, we expect our Q4 effective tax rate to be approximately flat. Capital expenditures for Q3 were $261 million. For the full year 2025, we expect capital expenditures to be about 6% of revenue.

In Q3, tariffs impacted our business by $31 million. For Q4, we currently expect a gross impact of about $60 million, increasing quarter-on-quarter due to Section 232 tariffs. These impacts are included in our guidance. Now let me provide you with comments on our Q4 expectations.

In our Completion and Production division, we expect greater than typical white space and seasonality in North America, partially offset by strong international results in the fourth quarter. As a result, in our Completion and Production division, we anticipate sequential revenue to decrease 4% to 6% and margins to be down 25 to 75 basis points. In our Drilling and Evaluation division, we expect sequential revenue to be flat to down 2% and margins to increase 50 to 100 basis points. I will now turn the call back to Jeff.

Thanks, Eric. Let me summarize the key takeaways from today's discussion. Halliburton delivered solid Q3 results with $5.6 billion in revenue. We took steps that will deliver estimated savings of $100 million per quarter, reset our 2026 capital budget and idled equipment that no longer meets our return expectations.

Our international growth engines, production services, artificial lift, unconventionals and drilling are performing well. In North America, Halliburton is executing its strategy to maximize value. ZEUS electric fleets now make up over half of our active fleet and iCruise CX is driving performance in key basins like the Permian, reinforcing our technology differentiation. Also, Halliburton and VoltaGrid agreed to launch an exciting new opportunity for international growth in data centers.

And finally, we are committed to returning cash to shareholders, maintaining cost and capital discipline and investing in differentiated technologies that drive long-term performance. And now let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Arun Jayaram with JPMorgan.

Gentlemen, you described how your relationship with VoltaGrid gives you a front seat to the emerging distributed power generation market. I was wondering if you could talk about your views on the evolution of that market over the last 3, 6, 9 months. And maybe talk a little bit about the strategic collaboration you announced last night, which I believe allows you to invest in project level economics internationally, but maybe you could provide a little bit more detail around that?

Yes, certainly. Look, the demand for power and for AI is like nothing I've ever seen in terms of demand growth and that we've watched that. And we also know that not only in the U.S. but around the world -- the rest of the world, is a really big opportunity set for the same level of growth. And as we look ahead to what we've announced with VoltaGrid, this is where Halliburton invests in project economics.

So we are sharing the economic value of projects together. And also, it's an opportunity to effectively leverage what we each do really well. And from a Halliburton perspective, we've got boots on the ground in 70 countries. We've got excellent execution skills, proven manufacturing, and we also have global scale -- industrial global scale, which I think is critical.

At the same time, VoltaGrid has solved for how to execute these projects technically and at scale. And we've built a strong relationship over 5 years as that technology has developed. We've worked closely with VoltaGrid and our own business, and that gives us a great deal of confidence in how they've gone about solving the technical requirements for data centers, and we're just super excited to be part of this whole venture going forward.

Great. And Jeff, maybe my follow-up. North American revenue was up 5% sequentially, a lot better than we had expected and maybe you had guided to and relatively flat on a year-over-year basis. Can you talk about some of the drivers of the outperformance in North America and thoughts on what this could mean for 2026?

Well, look, we saw less white space than we expected in Q3, which obviously drove revenues better than what we would have thought. And I think it also gets to the strength of the customers that we work with, the solid programs that they have. And as I look towards 2026, it gives me a lot of confidence in Halliburton's positioning in the market, both how we execute and maybe even more importantly, the technology that we're bringing to market. And as we described, put a couple of new ZEUS fleets to work and see demand for not only the electric fleet, which is a fantastic piece of equipment, but maybe even more so ZEUS IQ in terms of what that means to solving for EURs.

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

Jeff and team, I want to spend more time talking about the Middle East opportunity as it relates to power. And why specifically is that the region you think makes sense to be spending time on? And talk about some of the constraints that might exist in the Middle East in terms of really scaling the AI opportunity set and how do you intend to debottleneck them?

Look, I think that it's the Middle East and rest of world. I think our initial focus, Middle East, we see a lot of opportunity there. Obviously, that's an economy that is developing capabilities every single day and very much focused on looking forward to investment. And so -- the other thing is there is certainly a lot of available energy in the Middle East, and there is also a lot of capital in the Middle East.

And so those things all conspire to make that very attractive.

Right. Super. And then, Jeff, I know it's too early to talk about '26 at this point, and we'll get more color on the fourth quarter call. But just as you look at what is still a very uncertain macro for North America, in particular, just any early thoughts in helping us think through the picture for '26 and based on early customer conversations?

Yes. Look, it is really early. Customers haven't produced budgets yet at this point. We clearly are having discussions with customers.

I'd step back and say '26 is overall flattish with some bright spots is how I would describe all of '26. North America, we did stack some fleets in the quarter. Those probably don't come back to work. But here's what's more important to think about for '26 in my view. And it's going to be looking at the mileposts as we go through '26 because I think some important things are happening now.

Number one, OPEC+ barrels are getting into the market. We know that. North America, in my view, is probably below maintenance level spend. And so -- and then Mexico stays kind of probably where it is for a little while, but that decline in production there is also meaningful.

So if we think about Mexico declining North America likely rolling over and all the OPEC+ spare capacity in the market, that creates a real inflection point. Now when precisely that happens, less clear, but oil demand continues to grow, and that gives me a lot of confidence. And I think that with the OPEC barrels sort of behind us, it creates real tightness that -- sort of undisputable tightness in the market that I think the snapback will be super strong for us.

All right. We'll stay tuned as to get more investor -- customer conversation.

[Operator Instructions] Your next question comes from the line of David Anderson with Barclays.

So I just have a question about the margins, which are quite a bit stronger than we were expecting this quarter. You talked about taking $100 million of costs out per quarter. How much of that was in this current quarter? I'm just kind of curious as to how much it impacted the numbers.

Yes. Let me give you some color, Dave, on the Q3 margin versus guidance. So the first thing we had about half of the beat that came from reductions in labor cost that actually we realized the savings earlier than expected as our operation teams moved pretty quickly to get things done. Then in terms of what came out of operation between C&P and D&E, as Jeff just mentioned, very, very -- a lot less white space in North America land strong performance from the Gulf of America team.

And then overall, just a strong international performance, primarily from our completion tool and cementing business. And on the D&E side, the strong result came from our project management business in Latin America.

Okay. So Jeff, you know I'm asking a pilot question here. So with the partnership here, I'm curious about a couple of things. Obviously, we know VoltaGrid is bringing the power.

So I guess maybe you could just sort of simplify for us what HAL is bringing to the table here? And then sort of secondarily, what size projects are we talking about here? VoltaGrid just announced a big 2.3 gigawatt project. Are you talking about that size?

Or are you talking more like 100 -- 200, 400, that kind of range? And just kind of might as well throw this in there, what kind of time line are we talking here? Are we talking like 2028? I'm just kind of wondering about supply chain tightness and how that all lines up.

Well, let me start with maybe the last question. From a supply chain standpoint, VoltaGrid is in a fantastic position from a supply chain standpoint and comfortable with where they are. From a size of project, we're aligned with VoltaGrid around projects of the size and scale that they're talking about. And so I think they -- I'm not going to forecast size of projects, but feel comfortable they can be -- would be pretty big.

And then what does Halliburton bring? And I think Halliburton brings some very important things, particularly, I would say, industrial scale and working internationally. And we've all seen how difficult that can be for companies as they scale internationally. We've seen a lot of them less than successful as they scale and putting boots on the ground, managing projects, investing in projects, customer relationships.

There's a long list of things that Halliburton brings to the international markets where we are clearly can be additive. And then from a VoltaGrid perspective, clear on what they're doing.

Your next question comes from the line of Saurabh Pant with Bank of America.

Jeff, maybe I'll continue with that line of questioning on the power front, but pivot a little bit on the CapEx side of things because this business is pretty CapEx intensive, not something that you're not used to, right, Jeff, over the past. But how do you think about that? How do you think you'll fund that, not just at the VoltaGrid level, but how does the collaboration outside the U.S., right? So the Middle East like you're targeting right now, how does that look like from a funding from a CapEx standpoint?

Yes. So to be clear about how we're thinking about it, Saurabh, is -- so our CapEx budget for next year is $1 billion, whatever we do around power with VoltaGrid in the international market is not included in that $1 billion. The overall intent is to share total project economics. So we will be funding this on a project-by-project basis incrementally over the $1 billion or whatever baseline CapEx we have for our oil and gas business.

Okay. Okay. I got it. No, that's helpful, Eric.

And then one for the North America market, right? Like somebody noted on the call, your performance has been a lot better than a lot of us were thinking. It seems like -- Jeff, correct me if I'm wrong, it seems like you are not trying to be everything to everybody. You're targeting the customers, the large sophisticated customers that value what you bring to the table, right?

But just maybe talk to that a little bit. How are you targeting the North American market with the aim of maximizing value like you've been trying to do?

Well, look, maximizing value means that we are focused on efficiency and technology and electric fleets bring that, but we continue to invest in technology in North America. And I think that's where the point of bifurcation happens. And we've been clearly targeting customers that want to use that technology, both the electric and stepping forward into the subsurface and the control of sand and a lot of the things that ZEUS IQ and the many things that we've built along the way allow customers to do. And we continue to deepen that competitive advantage in terms of how we help customers solve for EUR sand control, measure sand performance, all of those things in the subsurface.

And so very deliberate. We don't compete in the spot market. We don't want to be competing in the spot market. You've seen us stack some diesel dual fuel fleets in the quarter for that very reason.

And so yes, clearly, we are not going to be everything to everyone. We're very pleased with the technology performance and pleased with the uptake on the technology. So there's really not a good reason to continue to burn up dual fuel equipment in a market that's not making returns. We have opportunities to send dual fuel equipment overseas, which we may do, we probably will do or we just idle it and wait for later when things get tighter and we put it back to work then.

Makes sense. Makes sense. Jeff, I'll turn it back. And by the way, as much as I like the $100 million in cost savings, I'm waiting for the day when activity is going up and we are adding labor costs. But until then, thanks a lot for the color.

Your next question comes from the line of James West with Melius Research.

So I want to be -- guys have been dancing around the VoltaGrid relationship with their questions so far, but I was hoping to just create some clarity here. We obviously know they have a distributed power technology that is going to be extremely useful. We understand the Middle East is energy rich. But really, outside of industrial scale, is it not the relationship that you bring to the table?

I mean nobody walks into the Kingdom of Saudi Arabia and says, "Hey, guys, can I do business?"

Correct. And that's when I described global industrial scale, I'm including customer relationships, markets, knowledge of markets, history in markets and history of execution in markets that is well respected by most of the people in those markets, clearly by the people in those markets, customers and governments and all the rest.

Exactly. That's exactly what we see. And then maybe on -- if we think about '26, and I know in North America, we can kind of leave that out for now because of the uncertainty. But it looks to me like Saudi is bottoming and is going to recover here in the first half, deepwater coming back in the second half.

Is that consistent with what your customers are kind of alluding or telling you at this point?

Yes. I mean our deepwater business is getting traction now and continues to strengthen as projects start and as we win projects. So that's sort of the view of that into '26 and beyond. Middle East, Saudi, in particular, I expect that picks up as we go into next year.

Now I don't think that it springs back to maybe where it was, but not declining as a form of improving, and I think there will be some improvement on top of that as we go into 2026 -- middle of 2026. And so yes. Look, the international business looks solid. Our technical position internationally looks very solid in terms of the growth engines I described, the contract wins we're having. And really, our value proposition is just continues to gain traction with customers all around the world.

So very happy with that.

Your next question comes from the line of Doug Becker with Capital One.

It was a good segue, Jeff. You've been highlighting the growth engines. Earlier this year, you talked about those engines could add $2.5 billion, maybe $3 billion of annual revenue, 3 to 5 years. How do you think Halliburton is progressing relative to those targets?

And I assume you feel pretty comfortable that Halliburton should be growing -- outgrowing the industry internationally given those growth engines?

Yes. They're on track, I mean, to do what we described. I pointed out a few of the anecdotes around the progress, but the progress is really deep rooted in our value proposition. And so these are strategic opportunities that continue to gain traction globally, whether intervention, you've seen the acquisition of Optime, which is playing a more and more meaningful role.

I know we've just -- I think there was a press release just last night or yesterday around application of that in the North Sea with Aker BP, but that continues to eROCS gain traction really in all deepwater markets. I'm very excited about that. Artificial lifts continues to gain traction throughout the Middle East, Latin America. So that's very much on track.

Drilling technology continues to advance with automation and drilling, done some just amazing work in terms of automated drilling, controlling or automating not only the rig, but the hydraulics, which is a key technical differentiator for Halliburton. And then in unconventionals, continue to -- look, we applied the technology of sensory and continuous pumping in Argentina. Those are market firsts there. They have an impact -- a positive impact, for customers and for Halliburton, see the Middle East the same way, and we see a lot of opportunity even Australia, where we've done quite a bit of work in international unconventional.

So very much on track and super excited about the differential growth opportunity that Halliburton has in these areas.

Definitely sounds encouraging. I wanted to touch base on Brazil specifically. Halliburton recently received a completion and stimulation contract expected to start next year. We've been hearing some of the offshore drilling contractors have been having one-on-one discussions with Petrobras about reducing costs.

Just what's your outlook for Brazil? And has Halliburton been approached about helping to reduce cost?

Look, we're super positive about Brazil. We've got a strong position there, both with IOC work and with Petrobras. Again, continue to develop technology specific for that market. We're in all sorts of discussions with Cenpes and -- look, no, in terms of the market in Brazil, we see growth in execution and technology uptake given the complexity of that deepwater market.

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

You guys have taken a very disciplined approach with respect to idling frac crews where you will make a reasonable return. I'm just curious, kind of where do you stand in that process? Was it more weighted to kind of 3Q or would idling be more weighted to 4Q when customers slow down? I'm just trying to think through your market comments around North America being down 12%, 13%, trying to separate the underlying market from the idling trend?

Look, I think that we will -- we idled some crews probably later in the quarter. You may see some of that in Q4. I think the idling and the white space in some respects go together. However, some of those crews that have been retired or -- not retired, but idled will stay idle until we see margins snap back on them. But I think what's important as we look at the miles post that I described is that the first thing to snap back or recover will be North America, and it's been that way for 1.5 decades.

And we've seen it through several downturns. And so we fully expect that the recovery will come quickly in North America when it comes, and we're going to want those fleets available to fill in gaps and actually take on some bigger work.

I appreciate the color. And then turning to the CapEx budget for next year, I think at $1 billion, it's a bit below where expectations were at. At the same time, your frac maintenance CapEx should be coming down a lot with the idling and investment in e-frac. Can you discuss kind of within the budget, your ability to continue to make the strategic investments in the D&E toolkit and your growth verticals within C&P.

It seems like those investments have borne a lot of fruit here in terms of share gains. So just kind of talk through the moving pieces in the budget next year and your ability to still make those strategic investments?

Look, let me start -- the capital budget, the 30% reduction is still in line, I think, largely, but it's -- look, as you described, investment cycles, we just view it as we don't -- that's where we need to be. From a strategic perspective, we continue to invest in R&D. We continue to invest in the technology that's differentiating. We have quite a bit of that, but we also have the ability to manage that inside of the budget that we have.

And I think that driving some tightness in equipment is a good thing, and I expect that you'll continue to see Halliburton investing in the technology that makes the outsized market returns.

I guess another way to kind of phrase it is, do you think you can still deliver the share gains in D&E and T&P with the $1 billion budgets next year?

Unequivocally, yes.

Your next question comes from the line of Marc Bianchi with TD Cowen.

I wanted to pivot back to some stuff on Volta. Is the arrangement that was announced last night, this international collaboration, is that an exclusive arrangement where Halliburton is sort of exclusively deploying the Volta technology? Or can they go work with someone else if they choose to?

Well, look, it's exclusive in parts. And I think where we're targeted, it's exclusive with certainty over a pretty good period of time. I'm not going to get into all the mechanics of the agreement, but the relationship is such that I feel confident that we are the partner. And like I said, co-investing and the work that we've done to get to where we are has all been important work.

And so quite confident in where that goes. And so what I think more important takeaway is this is a fantastic growth opportunity for Halliburton and for VoltaGrid internationally.

Indeed, Jeff. And if there's some dollar of spend that needs to occur in 2026 on top of the $1 billion CapEx that you have related to this, is there a certain percentage that Halliburton would be obligated to? Is it a 50% obligation or anything like that you can help us. So if we see a press release from Volta that they're spending $1 billion, and we can sort of get a sense of what that might mean for Halliburton's requirement?

Look, I think we'll be -- we will be investing alongside them. I think the capital -- we know how to raise capital and we know how to get capital. I think that these projects are imminently capitalizable. And so I don't see that as any kind of impediment whatsoever. And if you see them announcing capital investment around the world, we're likely -- more than likely, we are part of that.

The next question comes from the line of Derek Podhaizer with Piper Sandler.

I just wanted to go back to the theme around idling equipment. If we can get a little bit more color, maybe help us understand how many fleets that you've idled, how many you expect to be permanently impaired, how many you think might go back to work? Just trying to get a sense of the total market idling equipment. We've heard that from one of your peers last week.

How significant could this accelerated attrition really be for the market and create a better setup from a supply and demand perspective for 2026?

Well, let me -- we're going to idle things that aren't economic. And that's really the way we approach it, it's not so much a number of things. Well, the way I think about attrition, and I think this is what we're really seeing in the marketplace. We, in fact, are idling things and they remain idle.

They're not being bled back into the fleet to help shore up underperforming assets elsewhere for customers. And I think that is really the key when we think about attrition. So if we just look at amount of horsepower on a simul-frac, for example, we're fairly disciplined about that quantity. We probably won't have more than 65,000 horsepower on a location like that.

If we go look at competitors performing simul-frac, that number could be 100,000, 120,000 horsepower, effectively saying that that's attrition in motion. And I think when the market -- it doesn't need to recover much, if any, before we'll see real tightness in pricing in North America.

Got it. That's helpful. And this one might be for Eric, but I just wanted to ask about the free cash flow here in the quarter. It was a little bit light versus expectations, you got a working capital headwind. How should that flip to a tailwind in fourth quarter? And then maybe some early indications around 2026 free cash flow expectations, just given where CapEx is going down to $1 billion?

Right. So as it relates to 2025, Derek, we're still shooting for about $1.7 billion for the year. Q3 was indeed a bit lower than expected that came from higher revenue, slightly lower collection than expected and then the cash part of the charge that we took. We're confident about the yearly numbers.

Q4 is always the strongest quarter for collections. So we're not expecting that to change this year. As it relates to cash flow for 2026, it's really early to say. The big focus right now is obviously on ensuring and focusing on the strength of operation, returns, et cetera.

But I would say this, the cost reductions that we've undertaken everything else being equal, will result in $400 million less cost. We have $400 million lower CapEx. So in a way, it's $800 million of additional liquidity as we get into 2026. That being said, as we talked about, the macro environment is fairly volatile. So as we think about 2026, we may take a bit more of a conservative approach as to how we utilize the cash flow, particularly as it relates to buybacks.

Your next question comes from the line of Stephen Gengaro with Stifel.

I think two things for me. One is just to kind of get your views as we sort of think about '26 a little bit. We're hearing that frac activity is below levels to sustain U.S. production. And I'm just curious kind of in your conversations and what you've heard, how you think the E&Ps react to that as you go through 2026?

Look, I think that each E&P is going to do what they need to do. I'm stepping back and taking a broad view, and there are some that are slowing down and some that maybe are speeding up. But I think that overall, based on our view, North America, and I don't think that I'm the only one that thinks this is the fact that North America is flattish to down a little bit next year just based on activity level and capital spend. And so I think every customer is going to do what they think they need to do.

But I would say conserving capital is one of the things that they're doing.

And the other question I had is, as it pertains to some of the growth areas you've talked about like lift and chemicals, how do you think the competitive landscape has changed? And do you think that aids in your ability to continue to gain share in those areas?

I do. I think that -- well, in the lift area, it certainly does. And I think it's both performance and technology. We've got -- Intelevate is a key part of the software and AI around pumping.

Our pumps, artificial lift today are differentiating, and we continue to grow that business. And if you recall, we didn't have any international footprint to speak of. We had none when we acquired Summit. And so what we're seeing is outsized growth certainly for Halliburton.

And I think ESP has broadly become a more important tool as operators and governments and others seek to produce more oil from existing assets. So I think secular growth is in front of ESP. And I think our unique position, both technically and from where we started, give Halliburton an outsized opportunity for growth.

Your next question comes from the line of Keith MacKey with RBC Capital Markets.

Just wanted to start out on the CapEx guide for next year. I appreciate the incremental color on free cash flow. But when it comes to CapEx, you've always messaged that we should think about it as a 5% to 6% of revenue type target. Is that still the case for next year? Or have things changed just given the market outlook?

No, I think you should take the $1 billion guidance as a dollar number versus a ratio to revenue. And as Jeff gave some color, we've invested a lot in a couple of really key strategic initiatives around electric frac, around the revamping of our technology for directional drilling. We continue to invest in these, but the rollout has progressed significantly. So we don't need to use the same amount of capital dollars in these two strategic initiatives.

So you should be viewing this as being disciplined around our capital spend, but making sure that we can still deliver on growth and on all of our strategic initiatives.

Got it. Appreciate the color. And just stepping back to the market. Jeff, you mentioned North America generally the first place to come back in as the cycle turns upward.

Can you just talk to us how you're thinking a little bit more about how the drilling versus completion of that potential upswing might play out? I know some cycles, it's been drilling first then completion or vice versa? How do you see this one playing out?

Look, I think the supply chain in North America is much better wired together than it's ever been. So the idea that it's all drilling and then there are DUCs and then there's fracking. I think operators and service companies have solved for how to execute more efficiently. And so I think what you would see is rig count and frac count coming back generally together.

But it's -- so -- and the timing of that, again, less clear.

And at this time, that is all that we have for questions. I will now turn the call back over to Jeff Miller, Chairman, President and CEO, for closing remarks.

Okay. Thank you, John. And before we wrap up today's call, let me leave you with a few thoughts. I'm excited about what's ahead for Halliburton.

We have the right strategy, team, customer relationships, technology and exciting new opportunities. Our value proposition is validated by the work we're doing today and customer discussions we're having about future work. We are focused on executing the strategies that deliver strong financial performance. I look forward to speaking with you next quarter.

This concludes today's conference call. We would like to thank you for your participation. You may now disconnect your lines. Have a pleasant day.