HAL conference call

[dan_s]

An insider’s assessment of the U.S. unconventional oil and gas industry: ‘these companies will stay alive, survive and thrive’

In his opening remarks at the outset of today’s conference call, which will be his final earnings call to host for the company, Halliburton Executive Chairman Dave Lesar commented extensively on the state of North American unconventional oil and gas activity—which has evolved over the past decade and a half as one of Halliburton’s bread and butter customer groups.

From Dave Lesar, executive chairman, Halliburton Company:

“North American Animal Spirits are Back With a Vengeance” - Halliburton Exec. Chairman Dave Lesar
David Lesar, Executive Chairman of Halliburton

“I think it’s important to look at the North America unconventional ecosystem to understand our customers’ behavior and why their ability to so quickly increase production has expanded rapidly.

Currently, there’s a strongly held view by energy investors that the U.S. independent operators behave as a group. That view is wrong. When thousands of companies make discrete decisions about the same market each day, they do have a tendency to swing the activity and production pendulum too far one way or the other. That is not group think. It’s the impact of individuals trying to do the right thing for their investors.

Our U.S. customer base is not ten or so countries like OPEC. It is made up of thousands of companies from IOCs to individually-owned businesses.

The industry consists of ‘thousands of entrepreneurial, smart and motivated risk takers’

When you look at them separately, you see thousands of entrepreneurial, smart and motivated risk takers. They readily adapt to the quality of their reservoirs, have almost unlimited access to capital, aggressively apply new technology and quickly morph their business models and structures to meet changing market conditions, and, yes, sometimes even take advantage of U.S. restructuring laws. They are your classic American entrepreneurs, and their success should be recognized.

In Silicon Valley, such a success would be greatly celebrated as another industry disrupter. The unconventional disruption is not widely celebrated beyond the energy space, but it should be. The development of U.S. unconventional resources has been as disruptive to the global energy markets as Amazon has been to big box retailing or Uber to the taxi business.

It unleashed a wave of cheap, reliable energy that has disrupted global geopolitical and energy dynamics, made the U.S. more energy independent, caused OPEC to react and changed the fundamental economics of offshore production. And I believe it has created hundreds of billions of dollars of economic value, added hundreds of millions of dollars to government tax coffers and provided untold savings for consumers. So unconventionals is what I would call a disruptor, so let’s celebrate that.

Now I’ve heard energy investors say that today’s customer behavior shows nothing was learned in the last downturn.

That simply is not true. Our customers are smart and adaptive, and they do learn from the past. Their business DNA is to be survivors, and they are. Look at the reaction in the past several weeks. Today, rig-count growth is showing signs of plateauing, and customers are tapping the brakes. This demonstrates that individual companies are making rational decisions in the best interests of their shareholders.

This tapping of the brakes is happening all over the place in North America. I can tell you the market will respond. It will rebalance, and these companies will stay alive, survive and thrive. Because that is what they do.

I said several quarters ago that customer animal spirits were back, and they are, with a vengeance, and they are now running free through North America. Here’s my last piece of wisdom for you: Do not bet against the animal spirits that our North America customers embody. I never have, and I never will, because that is a bet that you will lose.

Now today is my last conference call and I’d like to take a moment to thank our analysts and investors.

It’s been a pleasure working with you, and although we haven’t always agreed, I’ve always enjoyed the spirited debates and intelligent conversations. I would also like to thank the employees at Halliburton for their hard work throughout my career. We have been through many cycles, emerging stronger from each one, and I am proud of what we have accomplished together.

And even though I will be absent from future calls, I look forward to the next 18 months, serving Halliburton as Executive Chairman. I am happy to leave these calls in the capable hands of Jeff, Chris and the other members of our experienced management team. I have no doubt they will continue to lead the company as a customer-centric and returns-focused business. And remember one thing: We are the execution company.