Executive Summary / Key Takeaways

• Halliburton is strategically positioned to outperform in the evolving energy services market, leveraging its differentiated technology portfolio and a disciplined focus on maximizing value in North America and driving targeted international growth.
• Recent financial performance reflects a challenging market, with Q1 2025 revenue down 7% year-over-year to $5.4 billion and operating income significantly impacted by $356 million in impairments and other charges, resulting in reported EPS of $0.24. Adjusted EPS was $0.60.
• Despite near-term market uncertainty, particularly in North America and specific international regions like Mexico, Halliburton's advanced technologies like the Zeus platform (including Zeus IQ for autonomous fracturing) and iCruise directional drilling are driving differentiation and securing work.
• The company maintains a strong commitment to shareholder returns, targeting at least $1.6 billion in cash returns in 2025 through dividends and share repurchases, supported by expected solid free cash flow generation and a manageable debt profile.
• Key risks include geopolitical volatility, commodity price fluctuations, potential impacts from new tariffs ($0.02-$0.03 EPS impact estimated for Q2 2025), and an ongoing IRS tax dispute, though management believes it can manage these without materially impacting core operations or shareholder return plans.

Setting the Stage: A Century of Service and Strategic Evolution

Founded in 1919, Halliburton Company has grown into one of the world's foremost providers of products and services to the energy industry. Operating in over 70 countries, the company plays a critical role across the reservoir lifecycle, from exploration and drilling to completion and production optimization. Its business is structured around two primary segments: Completion and Production (C&P) and Drilling and Evaluation (D&E), supported by a global manufacturing and operational footprint.

The energy services market is inherently cyclical, heavily influenced by upstream spending from oil and gas companies, which in turn is driven by commodity prices, global supply and demand dynamics, geopolitical stability, and regulatory environments. Recent market conditions have been dynamic, with oil prices experiencing volatility due to shifting demand outlooks, sanctions, trade tensions, and OPEC production decisions. The North American market has seen fluctuations in rig and completion activity, while international markets present a mixed picture with growth in some areas offset by declines elsewhere.

In response to these dynamics and building on a strategy initiated years prior, Halliburton has sharpened its focus on two core pillars: driving profitable international growth and maximizing value in North America. This strategic evolution emphasizes disciplined capital allocation, technological leadership, and a collaborative approach with customers aimed at maximizing asset value. This positioning is crucial in a highly competitive industry landscape populated by major players like Schlumberger (SLB), Baker Hughes (BKR), Weatherford International (WFRD), and equipment providers like NOV Inc. (NOV).

Competitive Landscape and Halliburton's Positioning

The oilfield services industry is intensely competitive, with substantial players vying for market share across various service lines and geographies. Halliburton holds a significant position, estimated to be around 15-20% of the global market, competing directly with larger rivals like SLB (25-30% market share) and BKR (15-20% market share), as well as specialized players like WFRD (5-10% market share) and equipment-focused companies like NOV (10-15% market share).

Financially, while Halliburton's TTM Gross Profit Margin of 18.17% and Operating Profit Margin of 14.48% demonstrate solid profitability, they generally trail larger, more diversified competitors like SLB (TTM Gross Margin ~21%, Operating Margin ~17%) and BKR (TTM Gross Margin ~21%, Operating Margin ~11%, but with a significant Industrial & Energy Technology segment). WFRD, while smaller, shows a higher TTM Gross Margin (~35%), reflecting its focus on specific, high-margin niches like artificial lift and intervention, where Halliburton also competes. NOV's margins (TTM Gross Margin ~23%, Operating Margin ~10%) are more aligned with equipment manufacturing.

Halliburton's strategic response to this competitive environment centers on differentiation through technology and execution, particularly in its core strengths. In North America, the "maximize value" strategy prioritizes returns over market share, focusing on high-spec equipment like the Zeus electric fracturing platform and advanced drilling technologies. This contrasts with some competitors who may prioritize fleet utilization or market share volume. Internationally, Halliburton leverages its global footprint and collaborative model to secure integrated projects and grow market share in targeted areas like unconventionals, artificial lift, and intervention, where its technology provides a competitive edge.

Customer relationships, including managing payment cycles (such as with a primary customer in Mexico, representing 7% of receivables as of Q1 2025), and navigating supply chain complexities and inflationary costs are critical operational aspects that influence competitive standing and profitability. Halliburton aims to pass on cost increases and mitigate supply chain impacts through scale and efficient sourcing, a capability shared with its largest peers but potentially offering an advantage over smaller competitors.

Technological Differentiation: The Engine of Value Creation

Technology is not merely a component of Halliburton's offering; it is central to its strategy and a key differentiator in the competitive landscape. The company invests significantly in R&D to develop solutions that improve efficiency, increase recovery, and maximize production for its customers, thereby creating a competitive moat.

A prime example is the Zeus electric fracturing platform. This system, which is expected to comprise over 50% of Halliburton's active North America fracturing fleet in 2025, operates under term contracts, providing revenue stability. The Zeus platform is being integrated with cutting-edge automation technologies:

• Octiv Auto Frac: This technology enables autonomous fracturing operations, executing the entire frac job with a single click. It provides customers with precise control to implement the frac design without human intervention, aiming for greater consistency and efficiency.
• Sensori Subsurface Measurement: This fracture diagnostics technology provides real-time data and insights into where sand and fluids are placed in the reservoir. It offers the building blocks for improving per-foot recovery, addressing a critical goal for operators. The combination of Auto Frac and Sensori, referred to as Zeus IQ, represents the industry's first closed-loop autonomous fracturing operation. Zeus IQ utilizes real-time feedback from the reservoir to direct pump activity, effectively "reading and responding" to the reservoir to optimize placement. Management believes Zeus IQ provides critical measurements and controls to improve productivity and production per lateral foot, potentially changing the game in unconventionals.

In the Drilling and Evaluation segment, Halliburton's iCruise rotary steerable system and LOGIX drilling automation platform are driving significant growth, particularly in North America unconventional basins and internationally. These technologies reliably deliver curve and lateral sections in a single run, improving drilling speed and reliability. The company has achieved the first fully automated surface and subsurface execution of rotary and slide drilling operations in Oman with Nabors (NBR), integrating LOGIX with Nabors' SmartROS®. This automation enhances operational efficiency, consistency, and real-time decision-making.

Other notable technological advancements include:

• Optime Subsea: An acquisition aimed at transforming deepwater interventions, including the development of the world's first riserless coiled tubing intervention service in alliance with TechnipFMC (FTI). This technology allows intervention services without a riser-equipped rig, making marginal or end-of-life offshore wells economically serviceable.
• EarthStar® 3DX: The industry's first 3D horizontal look-ahead resistivity service, providing geological insights up to 50 ft before bit penetration to identify hazards and inform real-time decisions.
• GeoESP line: Engineered for harsh geothermal environments, addressing challenges like extreme thermal cycling, scale, abrasion, and corrosion, with substantial growth opportunities seen in Europe.
• Intelevate service: Uses AI to process real-time data and remotely manage artificial lift pumps for optimal performance, seeing increased international adoption.

These technologies contribute directly to Halliburton's competitive advantage by offering quantifiable benefits to customers—whether it's improved drilling speed, more precise fracture placement, lower operating costs (as with electric fleets and efficient artificial lift), or enabling previously uneconomic interventions. This technological edge supports Halliburton's ability to maintain a premium position in the market, even amidst pricing pressures, and is fundamental to its strategy of maximizing value and driving targeted growth.

Segment and Geographic Performance: A Mixed Picture in Q1 2025

Halliburton's financial results for the first quarter of 2025 reflected a challenging market environment, particularly compared to the strong performance in Q1 2024. Total revenue for Q1 2025 was $5.417 billion, a decrease of 7% from $5.804 billion in the prior-year quarter. Operating income saw a significant decline, falling to $431 million from $987 million, primarily due to $356 million in impairments and other charges recorded in Q1 2025 (compared to none in Q1 2024). Net income attributable to the company was $204 million ($0.24 per diluted share), down from $606 million ($0.68 per diluted share) in Q1 2024. Excluding the impairments and other charges, adjusted net income was $517 million ($0.60 per diluted share).

The Completion and Production segment, the larger of the two, reported revenue of $3.120 billion in Q1 2025, an 8% decrease from $3.373 billion in Q1 2024. Operating income for the segment was $531 million, down 23% from $688 million. This performance was mainly driven by decreased pressure pumping services and lower completion tool sales in the Western Hemisphere, partially offset by strength in the Middle East.

The Drilling and Evaluation segment saw revenue decrease by 6% to $2.297 billion in Q1 2025 from $2.431 billion in Q1 2024. Segment operating income declined 12% to $352 million from $398 million. The primary drivers for this decline were decreased drilling services and project management activity in Mexico and lower drilling services and wireline activity in the Middle East/Asia, partially offset by increased fluid services in the Middle East.

Geographically, North America revenue experienced the steepest decline, falling 12% to $2.236 billion in Q1 2025 from $2.546 billion in Q1 2024. This was primarily attributed to lower stimulation activity in US Land and reduced completion tool sales in the Gulf of America, partially mitigated by higher artificial lift and improved drilling services in US Land and increased stimulation in the Gulf of America.

International revenue saw a more modest 2% decrease year-over-year, totaling $3.181 billion in Q1 2025 ($896 million in Latin America, $775 million in Europe/Africa/CIS, $1.510 billion in Middle East/Asia) compared to $3.258 billion in Q1 2024 ($1.108 billion in Latin America, $729 million in Europe/Africa/CIS, $1.421 billion in Middle East/Asia). The decline was largely driven by lower activity across multiple product service lines in Mexico, Senegal, and Italy. However, this was partially offset by increased activity in Kuwait, higher stimulation and completion tool sales in Saudi Arabia, and improved drilling-related services in Argentina, Brazil, and the Caribbean, along with higher completion tool sales in Europe. The Middle East/Asia region continued to demonstrate growth (+6% year-over-year), driven by Kuwait, Saudi Arabia, and the UAE.

Operational expenses in Q1 2025 included $30 million related to the ongoing SAP S4 migration, part of a total estimated project investment of approximately $270 million expected to enhance efficiency and visibility upon completion in the first half of 2026.

Financial Health and Capital Allocation Discipline

Halliburton maintains a focus on strong financial health and disciplined capital allocation. As of March 31, 2025, the company held $1.804 billion in cash and equivalents, down from $2.618 billion at December 31, 2024.

This decrease was influenced by cash flows from operating activities ($377 million provided), offset by significant uses including capital expenditures ($302 million), share repurchases ($250 million), dividends paid ($147 million), and payments related to an equity investment and business acquisitions ($461 million). Working capital movements, particularly increases in receivables and decreases in payables, represented a $154 million use of cash in Q1 2025.

The company's debt profile is considered manageable, with total debt of $7.541 billion as of March 31, 2025, and approximately $471 million in maturities coming due from 2025 through 2027, with the majority in 2025. Halliburton has access to a $3.5 billion revolving credit facility expiring in April 2027, which contains no financial covenants or material adverse change provisions, providing significant liquidity flexibility.

Capital expenditures for 2025 are expected to be approximately 6% of revenue. This level of spending is intended to support investments in key strategic technologies and international growth areas while maintaining capital discipline.

A core component of Halliburton's financial strategy is returning cash to shareholders. The company has a capital return framework with a goal of returning at least 50% of annual free cash flow. For 2025, Halliburton expects to return at least $1.6 billion to shareholders through dividends and share repurchases, consistent with this framework. As of March 31, 2025, approximately $2.8 billion remained authorized under the share repurchase program. The quarterly dividend rate is currently $0.17 per share.

Outlook and Key Risks

Halliburton's outlook for 2025 reflects a blend of cautious optimism regarding international growth engines and North America outperformance, tempered by near-term market uncertainties.

For the full year 2025, management expects international revenue to be flat to slightly down year-over-year, acknowledging increased risk compared to prior expectations. North America revenue is expected to decrease low to mid-single digits from 2024 levels, or be approximately flat with the second half of 2024.

Looking specifically at the second quarter of 2025, Halliburton anticipates sequential revenue for the Completion and Production segment to increase 1% to 3%, with margins remaining approximately flat. The Drilling and Evaluation segment is expected to see sequential revenue flat to down 2%, with margins declining 125 to 175 basis points. This D&E margin pressure is attributed primarily to the seasonal roll-off of software sales and higher mobilization expenses associated with new contract start-ups. However, management expects D&E margins in the second half of 2025 to return to levels seen in the second half of 2024, implying a notable sequential improvement from Q2 lows.

Corporate expenses and SAP S4 migration expenses are expected to be relatively flat sequentially in Q2 2025. Net interest expense is expected to increase by about $5 million, and other net expense is also expected to increase by about $5 million. The effective tax rate for Q2 2025 is anticipated to be approximately 23%.

Key risks that could impact this outlook include:

• Commodity Price Volatility: Fluctuations in oil and natural gas prices directly impact customer spending levels. Recent declines in crude prices since the end of Q1 2025 are expected to negatively impact Q2 2025 earnings per share.
• Geopolitical and Trade Tensions: Ongoing conflicts and trade disputes, including newly implemented tariffs on goods imported into the U.S., introduce uncertainty and can impact supply chains and costs. Initial estimates suggest a $0.02 to $0.03 per share impact from tariffs in Q2 2025.
• Activity Levels: Changes in worldwide drilling and completions activity, influenced by economic conditions, capital availability, and regulatory factors, directly affect demand for Halliburton's services. While management expects to outperform, a significant market downturn would still present challenges.
• Customer Payment Risk: Concentration of receivables with certain customers, particularly in regions like Mexico, poses a risk of delayed payments, although Halliburton has not experienced material write-offs historically and uses tools like CDSs to mitigate this.
• IRS Tax Dispute: The unresolved dispute with the IRS regarding the classification of the Baker Hughes termination fee could result in a significant cash tax payment ($640 million plus interest) if the IRS position prevails, although Halliburton is vigorously contesting this and does not anticipate it will materially impact its ability to meet expected cash needs or shareholder returns.

Despite these risks, Halliburton remains confident in its strategy and ability to generate solid free cash flow in 2025 and beyond, supported by its technological leadership, operational execution, and disciplined capital management.

Conclusion

Halliburton enters the mid-2020s as a seasoned energy services provider, strategically focused on leveraging its technological prowess and operational discipline to navigate a dynamic global market. While the first quarter of 2025 reflected near-term headwinds, including market softness in North America and specific international regions, the underlying investment thesis remains centered on the company's ability to drive profitable growth internationally through targeted expansion in high-potential areas like unconventionals, artificial lift, and intervention, and to maximize value in North America by deploying differentiated technologies like the Zeus platform and advanced drilling solutions.

The company's commitment to returning capital to shareholders, targeting at least $1.6 billion in 2025, underscores management's confidence in its free cash flow generation capabilities, even amidst market volatility and specific challenges like the IRS tax dispute or tariff impacts. Halliburton's competitive positioning is strengthened by its technological innovation and collaborative approach, which resonate with customers seeking efficiency and enhanced asset value. Investors should monitor the pace of international activity, the resilience of North America pricing and activity levels, the successful deployment and adoption of new technologies, and the resolution of key risks, particularly the IRS matter, as indicators of the company's continued ability to execute its strategy and deliver long-term value.