Welcome to Halliburton's Analyst Day 2013. Please welcome Vice President, Investor Relations, Kelly Youngblood.
Good morning, everyone. I'd like to welcome everyone attending today in person as well as those listening in live via webcast. We have a full program in store for you today and are very eager to get started. Let me begin with a few housekeeping items before we get going. First, safety is a top priority at Halliburton and so please take a moment to locate the nearest exit to you.
And in case of an emergency, we'll use the exit doors, proceed down the stairs or escalators and exit the front of the building. 2nd, I'd like to direct your attention to our safe harbor language on the screen. Today's presentations will include forward looking statements and those statements are subject to risks and uncertainties that could impact operations and financial results and cause our actual results to materially differ from those forward looking statements. These risk factors can be found in Halliburton's Form 10 ks for the year ended December 31, 2012, Form 10 Q for the quarter ended September 30, 2013 and recent current reports on Form 8 ks and other SEC filings. Our comments include non GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures can be found on our Investor Relations website.
And finally, last of the housekeeping items, we do ask that you, I think earlier said turn the
phones off if possible. And any other electronic devices you have,
please turn the sound off, you'll have the instructions on how to get connected to wireless. So let's go ahead and get started. Let me welcome to the stage Halliburton's Chairman, President and CEO, Dave Lazard. Dave?
Hi, Gold. Good morning, everyone, and welcome to our 2013 Analyst Day. I got to tell you we couldn't wait for this day to come because today we get to tell you our story. And I believe that at the end of the morning you will think that it really is a very powerful story indeed. We're very excited about where we are in today's marketplace.
And I hope those of you that were here yesterday got a sense of that excitement as it permeates through the management team that we have in place. Now, I'm not going to speak for very long today. You know me. You know what I stand for. Today, I want you to get to know some of our other management team a little bit better because it's this group and a lot of great other employees that are going to make our story happen.
Now, at our last Analyst Day, I spent a lot of time talking about our philosophy as a management team and as a company. And I focused on 2 things providing execution certainty and living up to our commitments. So I hope as you reflect on the last 3 years, you keep those thoughts in mind. We execute the plan and we live up to our commitments. More importantly, keep them in your head as we go throughout the day because as I said, we have a powerful and exciting story to tell you.
I also believe it's important to continue to make commitments to our shareholders, to continue to live up to those commitments
and I want you to hold us accountable for
meeting them. So, let's start first commitment we made is that we were going to outgrow you then. The first commitment we made is that we were going to outgrow the deepwater market by 25%. And I tell you, I don't care how you count the deepwater market. We did that and way more as we grew at a rate beyond market.
And we're going to dive into this topic a little deeper in a few minutes, but clearly we checked that box. The second commitment we made was to maintain our unconventional market leadership position, which we obviously have done. We said we would take what was then a vision of what could be that we called the frac of the future. Today, the completion of the future is a reality and when coupled together with our Battle Red initiative, we'll start to pay significant benefits to all of us over the next several years. So again, we lived up to that commitment.
So let's check that box. Next, we said we would triple the size of our mature business from $900,000,000 a year in revenue to $2,700,000,000 through organic growth and targeted acquisitions. This strategy has also paid off very well for us. We are currently on a run rate not of 2,700,000,000 dollars a year, but $3,000,000,000 a year in revenue and very much like how that market is evolving into higher end integrated projects where there is less competition. So, we met this commitment as well and I'll give us a check-in this box.
And finally, we made a commitment to close the international margin gap and maintain North American margin leadership. Now the international goal was set when we thought that we were at a market inflection point in the international areas and we would be able to introduce along at a slower pace since then, although it's now starting to pick up. So while our growth has been excellent, in fact, we've had the fastest growth in the international markets among our peer group, our margins and those of our peers are essentially back to where they were in 2010. So, in my view, this part of the story is not yet completed. So I'll have to give us an incomplete grade here.
So you know what we're going to do? We're going to reload and try it again. We are as excited about the international markets today as we were then. In North America, we made a commitment to maintain our margin leadership against our peer group. In fact, we met this goal and should get a check-in that box.
But I'm not going to do that because that would be like winning on a technicality. Why is that? After the last Analyst Day, there were 2 big integrated oil services company. If you look on the revenue side since then, our North American organic growth has been better to grow the old fashioned way organically. So, while our North American margins are technically still in the lead versus that has North American margins better than us.
We hope to change that fact with what you hear today. So, I'm very proud of our track record. I believe that we've called the market better than anyone else in our sector. We take pride in this and we'll continue to be as open and transparent with you as possible to maintain your confidence. Now as you saw yesterday, our management team is stronger than ever and we don't and we will never set conservative goals for ourselves.
I demand that our management team have goals that exceeds their reach And I would rather stretch and set a goal and miss it than set a low bar and easily jump over it. And I know that you feel the same way because you've told me that. So, one of the programs that we're going to unveil to you today is going to be our drive towards being the most efficient service company in North America. We're going to call the will encompass and capture the integrated internal benefits of PRAC of the Future, Battle Red and the other initiatives that we spent so much money on in the last 3 years. This is an ongoing process.
So after we've captured those benefits, we will look at implementing others that we are already services provider in North America. So, remember, we live up to our commitments as we go through this morning because we're going to make some new commitments to you today that when these commitments are executed will translate into leading performance in the sector and more specifically will continue to result in superior growth, margins and returns. So, let's turn to today's agenda. One thing that shouldn't surprise you is that we're sticking with our strategy. Our consistent focus on deepwater, mature fields and unconventionals has served us very, very well.
These are high growth, sustainable advances in deepwater technology and our expanded capability in mature fields. So, over the course of the morning, we're going to go into a greater level of detail on these markets to help you better understand our strategy in each of these key growth areas where we put in place the building blocks to continue to grow our business and outperform the market. So what are you going to hear today? 1st, that we are going to continue to outgrow in the expanding deepwater market. We've made great strides in the past few years and we're looking forward to seeing a continued payoff there.
2, you'll see significant continued growth in our mature fields business as this market evolves more and more toward higher end integrated projects. And thirdly, we're going to continue to lead in the unconventional space as we fully roll out Frac intelligence, so the more you use it, the smarter it gets. And our execution of these strategies will result in superior margins,
in
this year than any of our peers. So, at the end of the day, Mark McCollum will come up and model out for you the numbers that you will hear today. And when you do that, you will come up with some truly extraordinary results, both in terms of earnings to our Chief Operating Officer, Jeff Miller and he will MC the next couple of sessions. So Jeff welcome. Thank you.
Thanks, Dave, and good morning, everyone. It's great to be here today and it's also great to see all of you here today. Now I think I've met most of you at some point during the year, but if I haven't met you, please do grab me during one of the breaks so that we can meet. Now I've been in this job as Chief Operating Officer for about a year. And let me be clear that I am just as committed to the future targets that we'll lay out for you today as is Dave.
We're very excited about the Halliburton story and the opportunity to tell you about our strategy for the coming years. And then finally, to give you some insight into how we differentiate ourselves. Today, you'll hear us set bold targets for our company around both revenue growth and efficient operations. And then we'll describe how we make these happen. As Dave just mentioned, a big part about how we work really in our DNA will be HAL Vantage.
We've clearly demonstrated that we can grow. So let me repeat what Dave said. HAL Vantage is focused on efficiencies. And a big part of my job is delivering those HAL Vantage last few years. We've talked separately about a number of these.
But from here forward, when we talk about our efficiency efforts, we'll talk about those execution certainty. I've done that for the last year, and I can assure you that execution stays center going forward. I'm your emcee for today's event. So let me quickly cover the agenda. We've organized our day around our growth strategies: Deepwater, Mature Fields and Unconventionals.
First, Eric Corre will demonstrate our success in the deepwater market. He'll then walk you through how we've positioned our business geographically, those areas where we have a leading technology position and then finally, how we continue outgrowing the market. Next, John Lewis will walk you through the mechanics of our mature fields business and how we combine consulting proficiency, our global footprint and our integration our global footprint and our integration capabilities to create a terrific business and a business that will even flatten or reverse the mature fields decline curves for our clients. Jim Brown will then take you through the dynamic unconventionals market where we are the undisputed leader. We're winning the unconventional battle in North America and we earn that position by creating value at the well site every single day.
You should get a clear understanding about how we always reinvent ourselves, staying at least 2 to 3 years ahead of our competitors. And today we're introducing a a brand new product that transforms how clients view their reservoirs and how we work. Next, Mark McCollum will show you how numbers. At this point, let me just say that we absolutely believe in this market. And you've seen strong signals from us that demonstrate this.
We've raised our dividend, recapitalized the business for future growth and repurchased 10% of our outstanding shares. After Mark quantifies our outlook, you should clearly see that our growth story is still in the early innings. And then finally, Dave, Mark and I will answer your questions. So let's get started. Our first speaker today is Eric Carre, Senior Vice President of our Drilling and Evaluation division.
I'm proud to be on the management team with Eric. And what I like and what you'll like too about Eric is that he is totally focused on making sure that we have the best products, service quality, people and technology in the drilling and evaluation space. Eric, along with Harold Mesa, Vice President of our Operations in Brazil, will demonstrate what we've done to narrow the gap on our primary competitor and then separate ourselves from the rest of the pack. 3 years ago, we were seen as a compelling
Thank you, Jeff. Good morning, everyone. In our last Analyst Day, we highlighted deepwater as a major growth opportunity for Halliburton. We also shared our strategy to develop a substantial market position in this segment. Over the course of the next 30 minutes, Harald and I would like to demonstrate to you three things.
First, we have delivered on our commitment. But more importantly, we have developed significant infrastructure and organizational capabilities while doing so. 2nd, the deepwater market remains a very a tremendous growth opportunity for our company. The segment will remain attractive over the next 5 years and the opportunity to gain additional market share is still very significant. And 3rd, our deepwater strategy is working.
Our competitiveness in deepwater has significantly increased and we will continue to capitalize on it. Back in 20 by 25%. Let's briefly review how we did. Based on the Wood Mackenzie data, the deepwater market grew an average of 13% per year since 2011. Halliburton's deepwater revenue grew by 31% per year over that same period of time, so we have clearly delivered on our commitment.
Other benchmarks over the same period of time could be the deepwater account with a CAGR of 11% or more broadly the international service sector with a CAGR of 14 percent. So no matter how you look at it, we have delivered about twice the market growth rate. We also won major contracts and strengthened our market position with a lot of our key customers. Back in 2010, our major deep water operations were centered around the Golden Triangle and a few other operations. Since then, we've expanded our operation to 30 different countries.
Now some in our industry have commented that we actually bought work to drive growth in deepwater. As we would say in Europe, this is being very economical with the truth. We earned our position. So let me show you how we did that. When we started defining our strategy years back, the message from our customers was centered around 3 key elements.
They wanted a choice of suppliers in deepwater, but their concerns of our presentation 3 years ago. We outlined our strategy to become that compelling alternative in deepwater. The key building blocks of our success have been an unwavering investment in infrastructure, in our global footprint as well as a commitment to improving our technology portfolio. Let's first have a look at people and infrastructure. Over the last 3 years, we invested over $1,000,000,000 to improve our new facilities globally, totaling around totaling over 2,000,000 square feet, which is equivalent to adding about 10 technology centers such as the one you saw yesterday.
We have also increased our deepwater related headcount significantly. For example, in the Golden Triangle alone, headcount levels increased by over 35%. Now, if you consider the challenge associated with staffing deepwater operations in general or staffing challenges in countries such as Angola or Brazil, you will understand that this is quite an achievement. As a result of this major footprint expansion, we're now present in all deepwater markets around the world. The majority of the infrastructure investment is also behind us.
Therefore, we expect future deepwater contracts to generate enhanced margins as a result of improved cost absorption. Let's now move to technology. As you know, deepwater is a very technology driven segment and we could not have achieved this level of success without a competitive offering. What you see on the screen is a sample of about 30 new products and services we have commercialized in the last 3 years. Now it is not a comprehensive list by any means, but it gives you a sense of the focus we put on developing a competitive technology portfolio for water.
While we continue to lead in the finding and completion segment, driven by our landmark business and our number one market position in completions, I really want to draw your attention to the numerous technologies launched across the Drilling and Evaluation segment, which are really starting to make an impact. Developing a whole new suite of technologies is just one part of the story. We have also focused heavily on their market adoption and the results are evident in the numbers. You can see a couple of examples on the screen. In the last 3 years, the numbers of wire line sampling jobs has grown by over 2 60%.
Our new DynaLink wireless testing system has grown by 185%. The number of imaging jobs has grown by 170%. On the completion side, the new
10 has now captured over
70% of the lower tertiary completion market in the Gulf of Mexico. These are just a few examples of high end, high margin technologies that have fueled our growth. In summary, as you just saw, the primary drivers behind our exceptional growth in deepwater these last three years have clearly been our ability to ramp up infrastructure and to deliver key technologies to the market. Let's now look forward. What will the market look like in the next 3 to 5 years?
And what are the key strategies that will allow us to continue outperforming it. Fundamentally, the key drivers behind the deepwater market growth have not changed significantly over the last 3 years. 1st is access to reserves. Deepwater remains a critical component for many of our customers to access world class reserves and deliver on the production growth targets. According to Wood Mackenzie, in the last 5 years about 60% of all discoveries in terms of volume on two fronts.
1st is technologies that make it possible to identify new resources as you saw in the landmark demo of Geo Shell yesterday for example. 2nd, drilling and completion technologies, which makes it possible to resources unreachable before. We can now economically drill in 10,000 feet of water in very challenging environments such as subsoil or HPHT. Finally, licensing activity is in our view also very indicative of future growth. In 2012, the leading top 20 exploration companies licensed 40% more acreage than in 2011 and 28% of all licensing activity that ever took place last year.
Now think about that for a minute. Is there any better indicator of the growth come or the criticality of gaining market share at this particular point in time? So let's now take a look at some of the key trends in deepwater and what the implications are for us. First, it is worth mentioning as you can see on the map that deepwater is now clearly a global phenomenon with activity in all regions around the world. If we look at the next 5 years, there are 3 key elements which I believe are worth noting.
One, the deepwater market is projected to grow at a rate of over 10%. Now this rate could be higher driven by increasing service intensity and new technology adoption. The development segment of Deepwater is expected to grow at a faster rate than exploration in terms of well count, 13% versus 4%. Now this plays to our strength in terms of but the core deepwater business will remain centered around the Golden Triangle. About 60 percent of all wells drilled in the next 5 years will be drilled in the Golden Triangle.
This fits very well with our contract growth going forward and market trends which are favorable to Halliburton. So, how are we going to take advantage of these favorable market conditions? Well, our strategy going forward is primarily one of footprint, market share and technological capability now make us competitive in most deepwater market around the world. This will have a positive impact on our top and bottom line. Going forward, our deepwater margins will also strengthen, thanks to the winding down of our numerous start up operations and our operation teams getting up the learning curve in all new markets we entered.
2nd, we will continue to improve our leading market position in the development market completion costs. 3rd, we will continue to selectively introduce in existing and new contracts, market leading technologies. They help our customers reduce uncertainty and maximize the value of their assets. Let me give you a few examples of these leading differentiated technologies. Drilling Expert.
Drilling Expert provides a unique and fully integrated environment where our engineers can collaborate with our customers during planning and actual drilling operations to deliver the best wells in the shortest possible period of time. ICE Core. For the first time in our industry, ICE brings the lab down hole. This technology directly measures hydrocarbon composition under down hole conditions. This information is critical to our customers to evaluate reserves, design completions and surface facilities.
Geotap IDS. Our customers have always wanted the ability to take fluid samples while drilling. This technology does exactly this offering improved sampling quality, reduced sampling time, costs and risks. Some of these products have been under development for capabilities. We can now develop products faster, quickly address market requirements and get closer to our customers.
I want to highlight a few of these new capabilities today. 1st is our new acoustic center. It is designed to support technology development for both our wireline and LWD businesses. The state of the art facility gives us the in house capability to design and test technologies related sonic, ultrasonic and seismic technologies. These are critical for our customers to determine among others geomechanical reservoir properties.
The center was open 6 months ago and is already allowing our scientists to significantly accelerate the development of our next generation Sonic 2s. 2nd is our Brazil Technology Center. It was established in partnership with CenpES, which is the R and D arm of Petrobras and the University of Rio de Janeiro. The center is primarily focused on deepwater technology development and all new projects are co funded by customers. Several projects have been completed already such as new Siemens slurry through pre sold applications or advanced seismic under downhole condition the effect of a perforation on reservoir production.
Our customers only get one chance to perforate a given well. So it is critical that we get it right the first time and our lab allows us to do just that. Going forward, we will continue to invest both in new technologies as well as technology development capabilities. Now, we can apply these key strategies and technologies I just described to just about any market in the world. But what better example though than Brazil to illustrate what our strategy in action looks like?
It is the largest and one of the most technically driven markets in the world. It is also one where all of our key strategic components are in place including a tremendous contract portfolio. To discuss this, we brought in Harold Mesa who has been leading our operations down there for the last several years. Harold?
Thank you, Eric. Good morning, everyone. I will discuss how we are executing our deepwater strategy in the single largest deepwater market in the world, Brazil. But Brazil is not only a big market, it's one of the most complex and highly challenging deepwater environments in the world. Being successful in a market like this requires several important motivated people.
We need the right level of service quality and key multiyear contracts. In Brazil, our customers believe that we have fulfilled all of these requirements. And as a result, we have gained significant share during the last couple of years. We recognize that 20132014 is a challenging transitional period. However, according to Petrobras from 2015 beyond the market will start growing again.
Now considering the length of our contracts, in most cases up to we feel very confident that we will have proper returns on our investments. So now let's go to the strategy. The first component of our strategy is capitalizing on our infrastructure and on our people. We currently have 11 locations in Brazil and recently inaugurated our technology center in Rio de Janeiro. We are expanding our base in Macae and started the construction of a 2nd major facility in Macae as well.
We have expanded our operational capacity by over 45% during the last few years. So when we consider all of our facilities, we already have all the infrastructure that we require to service the market in the years to come. Now let me tell you about my team, my great team. We have 2,500 employees, 94% of them Brazilian, 65% of them under 35 years old. Not only that, 93% of them hold either a university or a technical degree.
So in few words, I am leading one of the best teams in the industry with young, talented, well educated and highly motivated people. Honestly, I could put my team against anyone in the world. And guess what? We always rock our ball. We always win.
The second component of our strategy is excellence in execution. And to accomplish that, we have to deliver from the service quality perspective. And that is exactly what we are doing. The charts on your screen describes operating efficiency relative to our largest competitors. Couple of years back, during the ramp up period, in the middle of a massive equipment mobilization with intensive hiring and training, there was a gap when compared to that competitor.
Today that gap disappeared. And we are competing head to head in directional drilling introducing technology to the market, technology that is adding significant value to our customers, but it's also adding tremendous value to our business. Brazil is a highly technology driven market. And due to the complex nature of the market and the discovery of the unique challenges around reservoir characterization and operations. So we are helping our customers, providing solutions to those challenges basically using 2 main approaches.
1st, leveraging our technology center. So in a collaborative environment with our customers, we are developing technology to be introduced into the market. And second, introducing technology from our global organization, technology that is addressing the issues that our customers in Brazil are facing. Again, we can only introduce technology into that market if we have some key components in place, the right infrastructure, the right people, the right level of service quality and key multiyear contracts. We have all of those components.
And as a result, we are executing very well this strategy. Eric mentioned in a couple of his slides back some of the technologies that we are introducing. But I will just mention a couple of those that we are introducing to market in Brazil. And the first one is Drilling Expert. But before getting into the details of the technology, let me make a comment.
I worked in directional drilling and wireline logging for over 18 years. And the first time when I reviewed this technology and potential, I was really excited about it. Let me tell you why. Drilling Expert is the most powerful drilling optimization platform in the industry. It integrates the drilling optimization workflows with engineering packages from our drilling related service lines, landmark, drilling, fluids and drilling bits.
The benefits that we're introducing to the market with these technologies are: 1st, superior planning capabilities, much better than the ones currently available in the market. 2nd, increased drilling efficiency and reduction of non productive decision making process in real time. So as you can see, Trilling Xpert has the potential to transform the entire drilling operation for our customers. And that is what makes this technology so exciting. We're expecting significant gains on the market on our market with the introduction of this technology in Brazil.
Another game changing technology that we are introducing to our What this technology does is a downhole conditions in real time allows us to obtain lab quality fluid ID measurements. This information is critical to our customers in order to reduce uncertainty around hydrocarbon composition. We have over 110 patents and filings related to this technology. And this large number is very indicative of the degree of sophistication that we are introducing to the market. Some of the benefits that we're introducing to our market with this ICE technology are first, lab quality, hydrocarbon composition analysis at downhole conditions.
So that means with this technology now, we are able to run multiple analysis without even pulling the tool out And second, now our customers can size reserves and strategize production in real time. We initially commercialized this technology outside of Brazil within our Guerlain Reservoir Description tool. We run over 20 jobs, more than 600 sampling hours with 100% reliability. So in summary, we are executing very well on our strategy. During the last few years, we managed to capture a significant contract portfolio And we are delivering it through our infrastructure, our people, our service quality and the technology that we are introducing to the market.
Certainly, we are expecting very good returns on our investments. Just to finalize, where is Mr. Lazar? Where is Dave? Dave.
I'm going to invite myself to the next Analyst Day, because I want to thank everyone who we became the largest service company in Brazil. I'll be here. Thank you. And let me turn it over to Eric.
Thanks, Harold. Great example of strategy execution in a very competitive market. Now as the Head of our Drilling and Evaluation division, I can assure you that we have implemented similar strategies in all key markets around the world to ensure we keep growing our deepwater business globally. So let me wrap things up. We made a commitment 3 years ago to significantly outgrow the deepwater market.
As we highlighted in our presentation, 1, we have on our commitment and we have built significant infrastructure and organizational capabilities while doing so. 2, our competitiveness in deepwater has increased significantly and we're now present in all key deepwater markets the world. 3, our strategy is working. So let me share a saying I learned when I came to the U. S.
If it ain't broke, don't fix it. So we are sticking to our commitment to outpace the deepwater market growth in the 3 years whatever the market turns out to be. Thank you. Jeff back to you.
Thanks, Eric. So a couple of things. This is a market that we all know is continuing to grow. And we're committing to continue outgrowing this bigger market by 25%. And I've heard competitors what this really means then is this is a bigger piece of a bigger prize.
Now I've heard competitors say that we bought this market share. But from what you just saw, it should be clear, very clear that we earned our share. And we earned our share on the back of our global footprint, technology and service quality. Okay. At this point, I'd like to shift gears.
John Lewis, our Senior Vice President of Europe and Sub Saharan Africa, is going to completely transform your perception of the mature fields market. I'm telling you, this is no longer the rusty old wellheads that you may have in your minds. John has been doing a tremendous job for us in his region and that's one of the toughest markets in the world. Paul Koehler, our Vice President of Consulting and Project Management, will join John to walk you through least. We've added discrete services to our portfolio, which may not sound that sexy, but let me tell you, the way this market is moving from discrete services to integrated asset management is really good.
And by that, I mean, great for us. But before mature fields can be important to us, they have to be important to our customers. Let's hear straight from a few of those customers right now.
The reality is most of the money is made to mature fields. It's where your investments has long been depreciated. It's where you make your real big returns.
The mature field is dominating our production.
Clearly from a production point of view, they are absolutely crucial to us.
I mean, we know there's
a lot of oil in the ground in those mature fields. Probably on average, we've recovered 45% and we think we can increase that another 15% to 25 percent.
Some years back, our company announced that our biggest new discovery was IOR or increased oil recovery on mature
got the confidence to go for the additional recovery rate.
I think you'll see they for us they'll continue to gain a larger percentage of our capital budgets. The horizontal drilling is working really well for us at West Delta 73. Take that to a couple more fields over the next 5 years and the piece of the pie will just get bigger and bigger for what we spend on the mature fields.
What we invest is giving a very fast payback.
I think we've invested sufficiently in mature fields. What we haven't done is invested sufficiently in human resources.
I think you'll continue to see what we've been doing become even more popular among everyone else, which is a lot of outsourcing to the big guys like to do our reservoir simulation. We've always depended on them for the R and D, smarter completions for horizontal. All those things are going to continue to get more attention.
To us, it's the most important part of our business.
Let's go get more rollout of existing
fields. Thanks, Jeff, and good morning. You just heard from a cross section of our customer base the importance of mature fields to their ongoing production targets and their financial goals. As operators continue to be challenged with the ever increasing capital requirements of greenfield developments, mature fields will remain their primary source of free cash flow and they will be the primary source of their highest returns. Now for the majority of our customers, meeting the expectations of the capital markets is therefore keenly dependent upon squeezing more hydrocarbon decline rates.
So the maintenance decline rates. So the maintenance of these free cash flow generators becomes increasingly service intensive, which as you will see through the course of this presentation plays to the strengths of Halliburton. Now as we heard in the video, mature fields have not always been the preferred career path of operator talent. Service sector for the technical and executional skills necessary to achieve these production goals. It is the secular trend therefore created by these dynamics that will ensure mature fields remain one of fastest growing spend areas in all field services in coming years.
Now before we talk about what this means for our future an update on our prior Analyst Day commitment. We committed to a tripling of our mature field revenues over a 3 year period to $2,700,000,000 a commitment as Dave mentioned earlier on in the presentation that we have exceeded. And we've done that through a combination of of organic and inorganic growth. And we remain uniquely positioned to continue to take advantage of the expanding market, in so doing creating a stable earnings growth engine for us with limited capital investment. Let me now provide a little bit more color on why we believe the market for mature fuel services will continue to be so significant over the next several years.
Now firstly, a definition. We define mature fields as any hydrocarbon asset that has passed peak production. Such fields represent an increasingly significant part of our customers' asset portfolios. And as the data on this slide illustrates, the production and reserves contribution from mature fields is forecasted to grow materially over the course of the next five years. Now again given their importance to free cash flow and returns, there are assets from which our customer base increasingly wish to maintain or increase recovery rates, book additional reserves, extend economic field life and or improve production efficiency.
But of course operators are also challenged by the rates at which these fields are declining, the result of an historical focus on production targets versus ultimate recovery. On average, 60% of the IOC's portfolio fields are in decline with the average decline rate being more than 8% per annum. And of course again both percentages will grow over next several years. Significantly, development CapEx for publicly listed oil and gas companies, while up 19% year on year has not been sufficient to stem a decline in reserve life, again highlighting that operators have to squeeze more hydrocarbon from these fields to meet the expectations of the capital markets. And this of course is a realistic objective given that on average we leave around 65% of the oil in place.
Not surprisingly, the challenge of mature the an increasingly important segment made up of companies who have evolved the management of mature fields as a core competency together with a growing number of smaller independents who see commercial opportunity in mature fields, but need to draw on the expertise of a company like Halliburton to execute on their projects. Now the increased importance of mature fields not surprisingly is reflected in spend patterns. The intervention market alone, a market we lead will be a $12,000,000,000 spend in 20.13, while the mature field drilling CapEx budget this year primarily associated with field drivers of them and their impact on future spend is perhaps much more so. While the increasing reliance on production from mature fields creates of itself a very healthy growth market, it is the service intensity required to extract each incremental barrel of hydrocarbon that is the real game changer. And as we see from this slide, the CapEx required for each incremental barrel has increased threefold over the last 3 years, a CAGR in excess of 12%.
Now very important it is these 2 the velocity and the inclination of what we refer to as the mature field treadmill. It also highlights that service intensity is not unique to unconventionals or deepwater. In fact, it is an accelerator of growth across all three of Halliburton's strategic themes. And even with this increase in service intensity, returns on mature fields for our customers remain very competitive. In fact, McKinsey have determined that capital efficiency on mature field well intervention barrels to be more than 3 times that of greenfield developments.
So how are we taking advantage of this secular trend? Well, firstly, we continue to execute on our multiyear mature field strategy, first outlined in the Analyst Day in 2010. Clearly, as you've seen, this is delivering results. But as the market matures, no pun intended, we have seen the development of 3 distinct commercial models: discrete services, integrated solutions and integrated asset management. Discrete Technologies, key to addressing the challenges of mature fields, will continue to deliver growth as we invest organically and inorganically in new technical capabilities.
But much more importantly, a comprehensive suite of discrete technical capabilities is a prerequisite to operating in the premium integrated solutions and integrated asset management segments. Positioning ourselves for these types of contracts, in other words moving our contract portfolio to the right of this slide is a core element of our strategy. With integrated asset management, operators are contracting us to manage all aspects of their mature fields, subsurface analysis, drilling and completions, infrastructure and facilities and production operations with payment for services and often a per barrel fee coming out of cost recovery on actual production. Now these projects are not easy to execute and we have learned some hard lessons over the last few years. But perhaps in the last three years, we have developed successful and proprietary execution models often based as you'll see later on in the presentation on some of the industry's most sophisticated technologies.
Very few companies have the technical, operational and financial competition is reduced, margins are much more attractive and contract terms are longer. Let me now turn the floor over to Paul Kola, Vice President of our Consulting and Project Management business who will update you on the execution of this strategy. Paul?
Thank you, John and good morning everyone. In addition to these three business models that John has described, from our customers' perspective, the solutions they seek fall into 3 types. 1st, immediate impact for increasing production and cash flow 2nd, optimize reservoir management for maximizing the recovery factor. And 3rd, new pay to further extend and leverage the existing infrastructure. Let's take a closer look at each of these.
The immediate impact solution is achieved through improved flow or production from existing wellbore. It might come in the form of clearing blockage that has formed in the wellbore as a result of scaling, sanding up or a non operating downhole valve or it could be that the reservoir is losing energy and we need to put in place or change out a downhole submersible pump. As many of the wells in a mature field have aged, another major challenge often faced is wellbore integrity, where if not addressed can lead to significant downtime and lost production. In all cases, the asset owner is looking for a quick and cost effective approach for how to rectify the situation. The second solution type, optimized reservoir management, is focused on increasing the ultimate recovery from an existing reservoir.
We want to squeeze out every drop we can that meets the economic extending life of the field. Examples include water flood, CO2 injection, admissible floods or maximizing reservoir contact through the use multilaterals, well extensions or infill drilling as well as a refrac program. These types of solutions require an extensive amount of reservoir characterization and modeling work. The 3rd solution type is for new pay zones or reservoirs. In the previous two solution sets, we were focused on increasing production and or increasing reserves from an existing producing reservoir.
The reservoir that provided the economic justification for all the surface facilities and wellbore infrastructure. Leveraging existing infrastructure for new pay horizons can deliver quite attractive economics. New pay horizons are usually the outcome of new technology being applied that was not available at the time the field was initially discovered. And therefore, these zones were deemed uneconomic. In addition to delivering across these three solution sets and also across 3 commercial models that John described, we must also engage with our customers to provide insight, diagnostics and execution.
I hope you're getting a sense that this is a complex business that we have to manage and one that is not easily entered. At our last Analyst Day, I talked about the knowledge and expertise we have within the organization for addressing our customers' challenges in their mature fields, where we work with them to define the optimal solution for what is possible, which can range from a specific technology for a discrete problem to an open ended challenge such as the unlocking of incremental production and reserves through new technology or perhaps new thinking. We accomplished this by leveraging over 11,000 technical professionals worldwide that cumulatively represent over 140,000 years of experience. As you can imagine, with this level of experience, our knowledge of every mature field basin enable us to provide great advances organically in our We have made great advances organically in our integrated case toll logging capabilities, which is particularly important in identifying new pay zones, where in many instances at the time the well was drilled, the open hole logs that were run-in the Uphol section yesterday. It's the clear leader for measuring gas saturation in tight gas sands behind pipe.
Another diagnostic component where great advances have been made both organically and through acquisitions is in software interpretation by Landmark on their decision space platform. Some of the new capabilities directly impacting mature fields include 40 seismic interpretation tools for monitoring reservoir floods and new software for production monitoring to identify and rank well intervention candidates. With respect to execution, over the last three years, we have been aggressive in our organic growth and targeted acquisitions. As a result, today we are number 1 in wellbore intervention. As the only service provider with the capacity capability for hydraulic workover, snubbing, coiled tubing and through tubing tools, This capability is a must for delivering immediate impact solutions.
We are also the number one provider of advanced multi lateral systems, which is a key technology for maximizing reservoir contact. And our autonomous ICD valve, which I talked about 3 years ago when it was still in the planning phase, is now being used extensively by our customers for minimizing water production. We acquired Multi Chem in 2011, which currently holds a number 3 market position for production chemicals, a key component for addressing scale issues, EOR applications and minimizing water production. Our most recent acquisition for our mature field strategy our mature field strategy came in late 2011 when we acquired Global Oilfield Services, an artificial lift company. At a compound annual growth rate of 20 percent over the last 4 years, the ESP market is the 2nd fastest growing market globally in the oilfield services area.
We are very excited and committed to this rapidly growing market and we'll continue to invest in it as evidenced by our recent acquisition of BTEvo Group out of China, which gives us a world class capability for the design and manufacturing of ESP downhole components. So I've talked about our customers' 3 solution needs and our customer engagement process. Let me now talk about how we are applying these to different commercial models that John described, starting with discrete services. This particular example is indicative of how we deliver value through discrete services in mature fields and is a good example of how we are penetrating the ESP market. We had a customer with a significant downtime challenge using conventional ESPs in the CO2 drive mature field.
The conventional ESPs that were being used in the producing wells were unable to handle the increased CO2 that was being ejected in offsetting wells for pressure maintenance causing scale problems. Further, these particular ESPs needed to operate in a very narrow back pressure range to prevent lockup. The current production was running at about 12 barrels a day and was reaching the uneconomic limit. Our solution to this challenge was to install our own ESPs with our proprietary gas bypass system, eliminating the back pressure and scaling issues. By applying this technology, we were able to reduce the water production and increased oil production to greater than 700 barrels of oil per day, a 5 83 percent increase.
At $100 per barrel oil, this results in a very quick payback that is measured in days and not months or years. Let's now move to integrated solutions. Let me first start with consulting, which is where the opportunity generation occurs and has experienced very significant growth in mature fields area with revenue doubling over the last 3 years. Without this capability, the service company will be very limited in their ability to participate across the full value chain of our E and P customers. As was mentioned earlier by John, the vast majority of the mature fuel reserves are owned by the NOCs close to 75%.
And though we do a lot of work, the IOCs and independents on their mature fields, the NOCs afford us a tremendous opportunity because they do not have the resources to work on these assets when the IOCs leave and in many instances they also do not have the expertise. Our consultants are as talented as anyone's. But what differentiates us is our collaborative approach in working with our customers and the proprietary workflows and software that we've developed to gain insight in what the opportunities are in their mature fields. This added insight enables us to identify new technology needs and drive the adoption of technology that can provide value to the field that previously was not considered. Through this close working relationship, we gained a unique partnership and intimate understanding of their assets, which gives us a preferred position for a seamless continuum into the execution phase with our product service lines and to further engagements on other fields.
Let's move to the execution phase and talk about integration. Integrated project management or IPM is where wells are drilled and completed on a project or turnkey basis, which I should add is not always on a fixed fee. And the vast majority of this work is on mature fields. This commercial model is gaining a lot of traction in the marketplace as evidenced by the compound annual growth rate of 12% over the last 3 years for the industry. Halliburton's CAGR for IPM over the same 3 year period is 23%, almost double to that of the industry.
The capabilities required to successfully participate on an IPM project encompasses not only the technical abilities that would be comparable to an operator's drilling department, but also the operational and commercial skills required to identify, assess and mitigate risk. Further, the table stakes to have a profitable seat at this table is that you must be able to execute at the discrete services level. Over the last 3 years, we have worked extensively in building up our IPM capabilities through significant efforts in recruiting, training, process tier rigs, a first for the IPM market segment. Let me share with you an example of an integrated solution that included both subsurface analysis and execution excellence. About 2 years ago, Halliburton was approached by an IOC with mature field challenge on one of their legacy offshore West African assets.
The production license was near exploration and the original reservoir was near siltstone with considerable oil in place. The customer needed to determine if the potential reservoir merited an extension of the the and then identified multiple approaches to drilling, completing, stimulating and producing it. An optimal innovative technology approach was delivered and successfully tested and resulted in sufficient production to merit launching an initial full field development planning effort based on this design. When this new pay zone is sanctioned for development, Halliburton retains the right of first refusal on all services at strong margins. Needless to say, only a very limited number of service providers can compete in this market segment and deliver this type of holistic solution.
Let's now move to integrated asset management. This is the prize. As John mentioned, the most recent trend that is evolving in mature fields particularly with the NOCs is towards incentivized contracts. And this is a core element of our mature field strategy and one we really like. This commercial model is attractive to Halliburton for a number of reasons.
First, we're able to leverage our surface expertise to better understand the most attractive reservoirs and decide those we wish to pursue. 2nd, the integrated long duration of these arrangements allows us to better leverage our service delivery infrastructure through which we can drive a higher efficiency level. 3rd, these types of projects provide a steady stream of revenue and margin over an extended time. And fourthly, there are only a handful of companies able to compete in this segment. A handful of companies able to compete in this segment.
2 recent projects that we've been awarded over the last 12 months of this nature are the Bayan field in Malaysia and the Jamapa field in the Chachantepac area of Mexico. Looking forward, we are targeting 2 to 3 of these types of expertise to operate successfully in these new commercial structures within our integrated asset management group and have organized ourselves internally to support this with consulting, IPM and Integrated Asset Management all being within the same organizational entity. Now it may appear as though we are trying to become an oil company. We are not. We are not seeking equity positions.
We do not strive to put barrels on our balance sheet. We are supplying know how, capacity and alignment of interest with upside through risk sharing on reservoir performance. So as we talked about the migration from discrete to integrated solutions service company without the subsurface insight, the breadth of discrete services, the capabilities of profitably executing on integrated services and the financial capability to operate a producing asset will not be able to achieve the highest position in the hierarchy of service providers. Before I turn the stage back over to John, I want to share with you an example of the type of solutions and impact we can have on a mature field and that we would incorporate in our own integrated asset management projects. This particular example is from a project we did with Kuwait Oil Company.
And as you will notice, it represents some of the highest technology in the industry. When thinking about work that is done on a mature field, it should not be thought of as a big one time study that is done every 3 to 5 years with an execution phase About 18 months ago, we were given a very About 18 months ago, we were given a very unique opportunity and challenge to provide a higher level integrated solution, a customized solution that would require integrating our well dynamics smart well technology with our Nexus reservoir simulator in real time on the Sabria field in North Kuwait. This was more than just connecting hardware. We had to define from scratch new workflows and processes to support this linkage as well as the need to address the aspect of change management to ensure the organization would embrace and adopt the new approach. The results are still coming in, but to date they have increased production and ultimate recovery by 7%, which is quite significant when you consider the productivity of these wells.
We are still working with KOC on this project and are in discussions with them for taking this technology and approach to other mature fields in their portfolio. As a side comment, when I visit the operations center, I am always impressed by the fact that you cannot tell who works for Halliburton and who works for KOC. This represents a true partnership between our two companies, a level of integration and reliance that few companies can achieve. Let's hear what KOC and a member of the Halliburton team have to say about this exciting project.
I have to listen to my reservoir. So if I cannot listen to my reservoir in an instant and especially in the decision making process where we are about 125 kilometers from the field, telephone call is not enough.
Alburn provided KOC a real time visual environment that enabled their engineers to diagnose, model, predict and implement corrective actions in response to changing field instrumentation. This allows for both the monitoring of key production data and the ability to change an individual well's mechanical state from pump settings to choke sizes. These smart wells are a key Halliburton technology and a cornerstone of real time production. In between monitoring and changing the state of the wells, at and modeling workflows, which support real time decision making. Instead of 10 key reservoir engineering workflows were automated, this allowed for real time analysis of the production data and the unique ability to quickly simulate different corrective actions for problem wells.
Halliburton used software tools like Nexus, Net Tools, DMS in unique visual collaborative environment. KFC engineers can now listen to their reservoirs, quickly model different responses and send the corrective action to the field to immediately increase production.
But we cannot find a new oil in the oil field without but we need to optimize it.
Thank you, Paul. I want to emphasize what you just heard. By integrating our industry leading smart well technologies with a series of automated production optimization workflows, we've created a unique real time ecosystem that is already delivering 7% production growth for this field for KOC on already prolific wells with further scope for improvement. Historically, Halliburton has been very strong in the well construction and completion space. But with Quiddef, we have integrated these production optimization solutions to provide unique insight to the next 20 years of the field's life, its production maintenance requirements and all of the associated services that go with this.
Projects like Quiddip represent a new and strategic segment of the mature field market for Halliburton, one that is defined by a deep understanding of the science and engineering of production optimization and enabled by a sophisticated series of proprietary IT solutions. Again, this is a capability that is not easy for others to replicate and clearly such solutions represent a key basis by which we
are
few summary statements. Firstly, I hope Paul and I have impressed upon you the opportunity mature fields represent. The treadmill nature of the acid type, the potential of the 65% unrecovered hydrocarbon, our customers' need to maintain free cash flow and competitive returns will ensure this secular trend remains a robust and growing segment of spend for many years to come. Secondly, through the multi year execution of our mature field strategy that Halliburton is uniquely positioned to lead this market. Through our consultative led engagements, we're able to better prescribe the reservoir solutions and through our broad portfolio of products and services deliver against these.
Thirdly, that migrating that by migrating our contract portfolio to the integrated asset management type of engagement that Paul described, we are creating an incremental and stable earnings growth engine that requires lower levels of capital investment delivering improved returns, which brings me to our commitment. Today, we're putting a stake in the ground and we're committing to a further tripling of our mature fields revenues over the next 3 years to 9,000,000,000 dollars a growth rate that will likely give us a leadership position in this segment. Our success over the last offerings such as Qudif give us and I hope you confidence in our ability to deliver against this commitment. And as we've emphasized throughout this presentation, an increasing percentage of this growth will come from integrated asset management contracts where the competition is less and the margins are superior. Thank you for your attention.
Thanks, John. Tripling our mature fields business to $9,000,000,000 is a terrific growth story. And what's more important, as this market evolves from discrete services to integrated asset management, it's a market where only a select few can participate. What's equally largely organic. So if it's not clear to you by this point, let me make it abundantly clear right now.
Our mature fields approach is laser focused on returns and we will execute our growth to $9,000,000,000 At this point, let's take a short 20 minute break and then we will resume our webcast. Thank you.
Are we ready?
Welcome back, everyone. Our next presenter probably doesn't need any introduction. I mean, who other than Jim Brown can tell you about how we continue lead the unconventional market? And I don't mean by a little, I mean lead by a lot. Now Jim told you 3 years ago what we saw happening in this market and showed you the blueprint for our frac of the future concept.
Jim, along with Stephen Ingram, our North American Technology and Marketing Manager and Laura Schilling, our Shell Global Account Manager for the Western Hemisphere will show you how this concept is a reality today. And it's a game changer in all aspects of surface efficiency. It's a competitive differentiator. And it's a competitive differentiator that we expect to accrue straight to our margins. So what's next in unconventionals?
We're targeting the subsurface, combining our leading unconventional knowledge and using predictive models like no one else in the Please welcome Jim Brown. Please welcome, Jim Brown.
Well, thank you, Jeff, and good morning, everyone. And again, welcome to our Analyst Day today. 3 years ago, as Jeff said, I stood in front of you and described how the world of unconventionals was changing and what we as a company would do to continue to achieve the number one position in the unconventional market. And again, as Jeff said, we are the undisputed leader in this space. So let's take a moment to see how we did.
We described a changing market, oil replacing gas, horizontals replacing verticals and a customer set that was more focused on integration and execution. I'd say we called it. At that time, we committed that we'd continue to be the undisputed leader in the unconventional marketplace. So to do this, we approached the market with 4 key strategies. 1, we focused holistically on the reservoir.
2, we always have and we will continue to take an integrated approach to solutions
3rd,
that we would execute the most effective and the most efficient delivery platform in the industry. And finally, that we have the lead providing Now let's look at our strategies. 1st, you remember our basin centered tech teams that I talked about 3 ago. This is how we delivered on our reservoir strategy. As the leaders in unconventionals, we have a very broad perspective and we see our customers' assets through a unique lens.
So by knowing that reservoir better than any of our competitors, multi disciplined teams to provide solutions to their challenges. We had 7 back then, if you remember. We had 7 tech teams. Today, we painted North America with a tech team network that includes every one of our operating districts. And we've strategically positioned ourselves to serve the emerging basins around and we keep adding more.
These teams drive the collaboration process across all disciplines and across all operations. Now looking towards the international unconventionals, we're going to utilize these tech teams to continue our leadership position in each one of these plays. When we outlined our expectations 3 years ago, the international basins were still in their infancy, but they were making good strides. However, the ramp up process has been slower than we originally anticipated. We've said it before, to hit full scale development, these markets require 4 factors.
1, you have to have the rock 2, a government that's willing to allow you to make a profit 3, you have to have the infrastructure and finally, you got to have the will to get it done. Ultimately, these plays require scale and efficiency to make them work, but it will come as these countries strive to gain their energy independence. As you know, we drilled and completed the 1st unconventional wells in most of the international plays. We're already operating in Australia, Argentina, China, Saudi Arabia and many others. The point is the list is long and we're positioned to lead.
Our second commitment was having an integrated approach. We pioneered multi PSL solutions. It's not about the discrete product lines anymore. It's about integrating the processes that go into creating a solution. Multiple product lines working in concert to harvest the asset and increase the BOEs for our customers.
For example, in drilling, we've packaged drilling fluids, motors and bits to efficiently deliver the perfectly placed wellbore. We put our money where our mouth is, commercializing performance based models based on cost and production. In completions, we've pioneered combining frac, case hole wireline, completion tools and coiled tubing to virtually remove all of the non productive time out of the process. And you'll hear more about this shortly when Laura Schilling talks about monetizing that white space. And with our newer product lines, we're linking artificial lift to chem production chemicals with a couple of our legacy lines to increase production and extend the life of our customers' assets as they mature.
So all in all, today in North America, over 85% of our revenue comes from integrated services, providing multiple 3rd, we tore up the blueprint on well site design and delivery and we started building the leanest, most efficient platform in the industry. For example, 3 years ago, in our production enhancement line, we introduced a game changing concept. You've all heard of it, Frac of the Future. And this is what it looks like today. We've brought percent in the industry.
Let me tell you what Battle Red is. It's not a concept. It's digitizing our back office from dispatch to timekeeping. We're taking our operational flows to the digital workspace. But Battle Red just isn't about frac.
It transcends all of our operations from drilling to completions. The future truly is here today. And finally, we're leading by delivering a suite of environmental solutions that help our customers as well as the general public understand that this is a sustainable business. We've delivered a smaller footprint on location and we've delivered our clean suite line of products and services. We introduced natural gas fired fleets and built solar power into our delivery platforms.
We are setting the pace. Now having executed on these four strategies, this is a common theme you're going to hear today. We made commitments and we delivered the The numbers prove it. We're number 1 in frac, we're number 1 in cement, number 1 in drilling fluids, number 1 in drill bits and cased hole, with a strong number 2 position across the rest of our product lines. And we're focused on staying ahead of the pack.
But today is a brand new world. I've said this before. In my 35 years in the industry in North America, I've always worried about the natural market and the weather that drove it. Now those traditional pronounced boom and bust cycles won't necessarily be the market driver. In fact, when it does come back, it just gives us the opportunity to add to our number one position.
It'll be gravy. But the reality is this, today is all about liquids and that's where we're focused. A more stable price, a steady rig count, mega pads, more service intensity, tailored chemistry, drilling and completion efficiencies. What all this means is, we've gone from volatility to stability to velocity. Today, it's all about velocity in this marketplace.
What this means for our customers is turning their wells on quicker, getting product to market. For us, it's using capital more efficiency. This is the new normal. The liquids market has evolved rapidly and we've risen to that challenge. For the most part, with the exception of a few growth areas, exploration and delineation is over.
We're now in full scale development. Every dollar matters. It's about maximizing production, utilizing technology to extract every barrel, less risk, less cost, more barrels. It comes down to a simple formula. 2 things you have to have.
You have to be the most efficient, lowest cost service provider and you have to make better wells. This obviously lowers the unit cost of production for our customers. But more importantly, in the end, it delivers Halliburton value and ultimately value for our shareholders. This is how we think at Halliburton. We focus on both sides of this formula.
So here's how we're going to do it. From frac of the future to Battle Red, as Dave said, this is part of the HAL Vantage. This is why we're the most efficient service provider. Frac of the Future is a perfect example of how we've completely redesigned one of our delivery systems, a leap ahead to minimize our footprint and reduce our capital investment. This system is unique to Halliburton and you can't buy it on the street.
And now we're taking that proven approach to cementing, logging and drilling and beyond. And again, let me tell you what Battle Red is, centralizing and digitizing our internal processes across all our product lines, across all operations, eliminating hundreds of touch points and bottlenecks from our system and things like invoicing, inventory, maintenance and personnel management. I'm very excited about what Battle Red means for our organization. And Laura Schilling will be up here in a few minutes to tell you more. Now let's look at the second half of the formula.
It's making better wells. Today, we're proud to showcase a brand new product. It's called Cipher. It truly is seismic to stimulation. This is a game changing product.
So I want you to please pay close attention. You've heard me talk about velocity. Here's a product that can make it happen. Cipher converges all of our tools, all of the data that goes into making a well decision. This product will precisely tell you where to drill, where to land and steer the well, where to complete, how to complete and ultimately predict what that well will make in terms of production.
There are some out there that can put 1 or 2 of these processes together with limited one place. As Dave said, it's not only smart, but through artificial intelligence, it learns. The more it's used, the more it learns. In early results, our customers utilizing this product are seeing gains of 20%, 30% and more in production. Now at this point, what I'd like to do is introduce Stephen Ingram.
Stephen is our North America Technology Manager. He's going to detail for you this transformational product and what it means to our customers and what it means to us. Stephen?
Thank you, Jim. As you heard Jim say, today Halliburton is announcing Cipher. It is a fully integrated decision making product. In essence, it tells you where to drill, where to land the well, how to complete the well and where to complete the well. And what is the value to our customer?
Well, 2 enormous value drivers increased production and reduced uncertainty. So let's take a little closer look at Cipher. The image on the screen is the Midland Basin, picture it in your mind, West Texas, specifically its decline This is a pad location with a surface view. The next image brings in a 3 d wall from Seismic. Now Seismic provides us a general overview of the subsurface of a large section.
It allows you to get an understanding of the structure and gives us resolution appraisal wells, we can include our logging data. Our full portfolio of logging suites including our industry leading magnetic
the
a interpretations. We apply our world class shale formation evaluation techniques to discover the sweet spots. This is the place in the reservoir where we will maximize production early in the life of the asset. The red, well it now represents the sweetest spots. The combination of petrophysical, geological and geophysical data in this model tells us where to drill and how to data, we design and model the optimal completion and fracture treatment.
We model key factors in the sweet spot to drain it including the complex fractures growth, the lateral length, the number of to drill the well, where to land the well, where and how to complete the well. The goal is to complete the very best wells first in an acreage position. Cipher is more than creating effective well into the integrated model, we increase the predictability of production. We'll talk about that in a moment. So I've described some of the science that goes into these models and let's take a look at what our customer sees.
Cipher delivers an integrated model containing the important reservoir properties necessary for them to characterize their shale well and by modeling the wells complex fracture growth. And finally, Cipher tells us how to complete the well by formulating the optimal stage spacing for each section of the lateral. The design. The ability to integrate from so many disparate data sources is unique to Halliburton and it's due to the open asset model is no longer static to the operator. As you drill and complete more wells, the data is gathered and can be modeled at any time.
It is a dynamic product that in effect learns with each new well drilled and it drives recommendations from artificial neural networks. The that pulls off all of these domains into a single platform with such immediate implications on how to increase productivities of large assets. Cipher truly is the 1st integrated smart product for our industry. Embedded is 27 IP and patent protections protecting ourselves in addition to being trademarked for delivery in the field today. Now we've been beta testing Cipher for well over a year to validate the benefits to our customers, which is uncertainty and increasing production.
So to show Cipher's impact, I'd like to provide you with the results of 2 ongoing projects with large independent oil and gas operators here in the United States. 1 in a liquids reservoir and the other in a gas. In North Texas, in the liquid producing area of the Barnett Shale, a client was faced with inconsistent well performance, which was becoming uneconomical for their team. In this image, you see a wellbore in black. It's drilled by our competition.
The target zone shown in red is a 50 foot target interval. Unfortunately to the columns on the bottom of the image. As you move through the fracturing stages, you see varied production contribution. When this wellbore is out of zone, that section of the well produces less, which has been documented by Cipher. This data shown before you has been originated from fiber optic production monitoring technology, which you saw demonstrated to you yesterday.
The key takeaway here is that as much as 50 engineering tech team identified the natural fracture The engineering tech team identified the natural fracture network and recommended sweet spots. There are so many factors that go into successfully drilling and completing wells. Before having Cipher, the client would have only been able to isolate some of the root causes on future wells. With Cipher product, we were able to determine the most pivotal factors that drove consistent performance and increased production. So the results.
Cipher delivered the sweet spot and consistent production contribution along the lateral length. This project which began earlier this year and on 45 wells to date, the tech team using Cipher has delivered an increase of over 60% estimated recovery. Cipher has enabled to do many things with this client. It allowed us to make better wells, but it also secured our market position with them and introduced new technologies that positively impacted them and our margins. Our next example is from a factory operation in the Marcellus Shale.
Now this client is far past exploration and appraisal. They've been in the play many years and we've been right there focused on their reservoir with them. But what does factory mean to them? They're in a high velocity mode. They need to make decisions quickly, drilling faster.
And here's where reducing uncertainty has an exceedingly high value. Halliburton has differentiated itself by eliminating the uncertainty of producing viable wells by utilizing Cipher. Cipher results in a better understanding of economic trade offs. For example, when Cipher models various drilling and completion designs, it produces an estimate of future production and includes estimates of well costs. Operators can now make investment decisions with a clear view of the expected payoff.
In other words, customers can now see exactly how much predicted production that they can achieve on a per well recommendations from the integrated asset model were made, there and the recommendations from the integrated asset model were made, there was a 93% correlation between predicted and actual production. So let me state that again. There's a 93% correlation before a bit was ever spudded in the ground. Think of the value that Cipher adds to the customer. Cipher identified the wellbore placement, the well spacing, perforation cluster frac fluid chemistry and many other factors.
It eliminated oversized surface equipment, it right sized gas compression and it ensured the accuracy of pipeline contracts. This work has affected how operators go to market and the confidence by which they work. Now that is quite a value proposition. Cipher has shown the customer where to drill the well, how to drill the well, where to complete the well and how to complete the well, eliminating uncertainty that drives value in the
in
Cypress has to pull through services in large scale projects. By understanding that their challenges is both increasing production and reducing uncertainty. We have strengthened our business relationship with them. This is our sustainable model continuing to be the 1st mover in understanding challenges and providing solutions to them. So let's transition now to S.
We
see results today and the ability to S. We see results today and the ability to increase and affect production in the amounts of a 27% increase in the Utica, a 24% increase in the Bakken, 29% increase in United States. These statements speak to the strength and the breadth of the Cipher product coupled with our tech team basin knowledge. So I'd like to recap the major points of differentiation that Halliburton brings through Cipher. By focusing on the reservoir and knowing where to drill the well, where to land the well, where to complete the well and how to complete the well.
Cipher reduces uncertainty and it makes better wells. You see with Cipher, I just don't understand how any operator would drill or operate without this knowledge. It is self evident. It is the total optimization product. Thank you.
Jim?
Well, self evident is right. I mean, look at these numbers 20%, 40%, 60% better wells. Our wells are right next to our competitors' wells. In some cases, we're only 1,000 feet apart. There's probably people in this room with the help of Cipher could drill, steer and complete a well.
And to demonstrate how effective it is, everyone here today will receive a copy of a digital game we created called Seeking Cypher to test your knowledge and your skill set. So thank you, Stephen. Now Stephen's talked about the bottom side of the formula. That's making better wells. Now, I'd like to introduce Laura Schilling, who will walk you through the efficiency side of the formula.
Prior to her current role, Laura was a district manager and she led one of our largest district operations in North America. She's going to share with you our efficiency gains and what it means to our bottom line. Laura?
Thank you, Jim. So it's really good to see everyone. For the last 3 years, I've been in the field leading our operation in the Niobrara play in the DJ Basin. In fact, the Brighton Field Camp was one of the first to upgrade our frac fleet to the frac of the future technologies. We were also one of the first to deploy the Battle Red initiatives.
And these innovations led to a re invention of how we delivered in the field and our customers noticed. We led incredible change and I saw how this differentiated our services to our customers, resulting in the incredible market leadership we enjoy there today. So for the next Brighton, Colorado. Now you know in the Rockies, some of you know the winters get cold and dark and I tell you being a district manager is a pretty So as Jim mentioned, we're focused on both sides of the formula. And driving superior operational efficiency is all about influencing metrics that we can control.
And this began with the the field through improved equipment design. At the time, we committed to you that this would result in 20% less capital on location, 35% less personnel and that we would decrease completion times by 25%. And at that particular time in 2010, we did not quantify a commitment to you for savings related to maintenance. But when we look at the real impact of this new way of working, we're actually outpacing those numbers.
On sites
where frac of the percent less capital on location and we reduced completion times closer to 40%. By the end of the year, 20% of our fleet will be converted to the frac of the future equipment such as the Q10 pump. The Q10 is customized for 24 hour operations, reducing downtime and what we've seen is reducing maintenance costs by 50 percent. This kind of performance has reduced our footprint and the amount of equipment needed on location. The solar powered sand capsules have automated proppant conveyance systems that reduce waste and the need for personnel to monitor these tasks.
And with remote operation centers in every major unconventional play, we provide real time engineering support off location and we're monitoring thousands of drilling and completion jobs a month. Next generation technologies and equipment continue to be added to the Frac of the Future portfolio. We're introducing a new sandcastle, the PS4000 that doubles proppant capacity on location. And the pump down visualization capability you saw yesterday allows us to optimize the speed of setting plugs, allowing us to are are driving new levels of efficiency. Our AccessFrac service uses a proprietary, degradable diverting material to establish zones that can withstand the rigors of fracturing.
And using this technology, customers can set fewer plugs and treat more perforation clusters. The number of trips and drill out time is reduced, resulting in improved completions efficiency. And to date, we've done 3,000 jobs globally with this technology. So as you can see, Brack of the Future platform led to a re invention of how we deliver services in the field. And the lessons we have learned extend far beyond completion services.
We've taken operational efficiency to the next level. So what is the result? Delivering superior operational efficiency means we turn well inventories into producing economies of scale for the customer. And through higher utilization, we lower our cost to deliver and our customers' cost per BOE. Our unique approach to how we deliver in the field is a major component of why we win and it's a differentiator to our customers.
But really, this is just beginning. Now, Stephen just described the powerful tool that we have in Cipher. For Halliburton and Stephen showcased, efficiency starts with understanding the reservoir. And by identifying the sweet spot and understanding reservoir drainage patterns, we identify where to drill, how to land the wellbore and then we can customize the optimal drilling system. And this is where 2011, horizontal wells in the Niobrara took about 18 days to drill.
Horizontal wells now average around 8 days. With 1 customer, Halliburton customized Basin. And during drilling, the well was monitored in real time allowing the engineering team to optimize rotary speed, weight on bit and torque to maximize drilling efficiency. By optimizing drill bits, fluids and drilling, Halliburton now drills these wells in less than five days. That's 43% faster than the current average.
And this kind of performance through integration delivers efficiencies that can be repeated across multiple wells on a pad. Our approach not only enables the customer to create inventory faster, but our understanding in the reservoir helps us recommend optimal lateral length, the best number of wells on pads, custom perforation and completion designs, all in turn contributing to lowering our customers' cost per BOE. So reinventing our delivery platform required us to look at efficiency in an entirely different way. So let's look at a completions example. We had to ask ourselves several new questions.
How much time is attributable to operating hours on a job? Can we reduce the amount of downtime between stages? Better yet, can we reduce the amount of downtime between wells? How can we monetize the white space otherwise known as non operating time? So currently, while we could be on a location completing a well over 3 to 4 days, operating hours represent about 40% of the time.
What activities are taking place the other percentage of the time? Well, a good portion of it, we're waiting on 3rd parties. But for us, when delivering our services, a lot of times we're moving equipment, we're rigging up and down, measuring materials such as sand and chemicals, performing maintenance, paperwork, sometimes waiting on assets to we're not making any revenue. So customized equipment helped decrease some of this non operating time, but there was a lot more white space to capture. 24 hour crew working for 30 days.
From 1 24 hour crew working for 30 days. Now these numbers will depend will vary depending on the design and who the customer is. But in this particular case, this crew completed 3.32 30 to location. In total, this crew pumped 52,000,000 gallons of fluid. Delivering this kind of volume 24 hours a day across unconventional basins, it is a complex task.
And often as complexity increases, so does in efficiency. And we believe we are the most efficient than anyone else in the industry, but there's still a lot of room for improvement. And it was out of these challenges that Battle Red became the next enabler for surface efficiency. We leaned out basic inventory, allows remote maintenance monitoring and even personnel management. We also created more transparent logistics networks to support our businesses in major basins.
For example, as part of our logistics network, Halliburton owns proppant storage plants, and that gives us control of the value chain and helps drive efficiency. And this actually keeps our transportation and delivery costs lower than our competitors from rail to wellhead. And today, we have regional dispatch hubs with visibility to every job in an area and every piece of equipment. So for our customers, this means we can source equipment faster and decrease non productive time. And for Halliburton, this means we no longer have stranded assets.
This transparency promotes increased utilization, enabling us to catch more work and generate more revenue. So you've heard a lot about Battle Red, and it can be a hard concept to understand. So let me give you a few real life examples of how digitizing our processes has changed how we work. Now many of these tasks used to often result in huge amounts of paper being shuffled across my desk or from department to department days after the job. But now with a smartphone like the one I have in my hand, as a district manager, I had roads they took to get there.
I can see when a crew arrived on location, and even see what roads they took to get there. I can see when a
crew arrived on location, and
even see what
roads they took to get there.
I can see when a crew arrived on location, and even see what roads
they took to get there. I can see when a
crew arrived on location, and even see what roads they took to get there. I can see which crew is on-site and how many hours that they have logged and manage overtime. I could monitor jobs. I could see what frac stages they're on, even see if a crew is performing maintenance on a certain piece of equipment. And I could review individual customer details and invoices.
In total, I could see the daily utilization, red hard hat. Let's say I'm a service leader on a crew. I can order materials such as sand and chemicals and I can have them shipped directly to location. I can see how much material inventory is currently on location and crews can also check key job procedures, take training and safety modules while they're out. And most importantly, I can review for the job.
I can check accuracy and materials and I can give it to the customer before I leave location. Now this process used to require putting 2 big binders together of job data and materials and I would have to drive it over to the customer's office sometimes many days after the job and try to get the ticket signed. But now as a service leader, the customer can actually sign the screen. So I have the visibility to the right information so I can manage my cost, inventory and Brighton was one of the first to pilot the software applications and train our crews on the processes, but other districts are currently implementing these applications now. So what happens when we bring all of these pieces together?
Halliburton delivers across the most efficient platform and we monetize the white space having reinvented our service delivery platform. And that's the Howell advantage. As we bring these pieces of efficiency and automation together by implementing across our entire fleet, operating time can represent closer to 75% of our time on location. Remember what I said, if we're not drilling, fracking, cementing, running wire line, we're not generating revenue. But through increased efficiency, we have shrunk and we've monetized this white space.
And it worked in Brighton, but we have a lot of runway left as we implement this across our operation. So just in closing, for Halliburton, through more efficient service delivery, the decrease in maintenance costs, higher utilization and more robust logistics networks, we lower our total operating costs. For the customer, this translates to getting more wells completed that velocity and that lowers their cost per BOE. Jim?
Thank you, Laura. I mean, this is really cool stuff. And this is taking our business really into the 21st century. These kind of efficiencies that Laura just demonstrated, they don't happen overnight. It's transforming how we work today and how we've widened the gap between us and our competitors to
formula is simple.
The most efficient service company that delivers the best wells. Now you're not going to see this stuff at Bob's Completion Service and Bait Shop. And you're not going to see it from our primary competitors either, because we're the only ones that are attacking both sides of this simple formula. Again, we're being repetitive here, but it's important. For the customer, it yields a lower cost for BOE.
For Halliburton, the equation yields better margins. So at this point, I'm going to draw a line in the sand or as we like to say a line in the proppant. So here we go. My commitment for Halliburton is over the next 3 years, 500 basis points of margin in our North America operations. And that's without a price increase.
Again, if you're the most the most efficient service provider and you deliver the best wells and you go to market with the most professional, knowledgeable, well connected sales force. 500 basis points is a slam dunk. So with that, I'll close. Thank you very much for your
Jim, 500 basis points. I never thought I'd see that happen. You can be focused on something more than revenue growth. I'm excited and you should be excited too. Excited because we have the unique market.
Cipher is the only product of its kind that shows you where to drill, where to steer a well, where to complete and how to complete. Even more, Cipher is an interactive and iterative product, not a series of static consulting models. Cipher will be how we design work in the office and then execute work in the field. In fact, we know how to make better wells. And what we know is that it takes both customized horsepower and science.
At this point, you've heard our outlook and our commitments for our 3 strategic themes. So you have to be asking yourself, what's this mean in terms of revenues, margins and shareholder returns? Now I've been in finance, I've run countries and service lines and I've been in sales. And I can tell you that this next guy is the toughest guy to sell in the room. But Mark McCollum, our Chief Financial Officer, has terrific insight into this industry and how it works.
So at this point, let's get dialed in to what these commitments mean really mean financially. Mark?
Thanks, Jeff, and good morning, everyone. I was telling somebody earlier that it's a rare situation in this world where everybody is on the edge of their to hear from a numbers guy. So I'm excited about the opportunity to address you here. Dave opened up the presentation today saying that we're staying the course on our strategy and that we'll remain focused on the 3 key areas of growth that have benefited us so well over the last few years. As you've already heard this morning, if we haven't already figured it out, we tend to set stretch goals for ourselves here in this organization.
Pretty aggressive new goals almost as fast as my Baylor Bears score touchdowns. Almost, not quite, but almost. So let me take a minute and or intend to continue outgrowing the market by 25%. We've used the last several years to put the building blocks in place to make this happen. We told you we spent over $1,000,000,000 in infrastructure to get us there.
Now we're starting to reap the benefits of those investments. But it's going to be technology that takes us from here. We're transitioning from being a compelling alternative to a compelling choice, which will help us to continue to grow our market share, particularly as we leverage the market trend toward more development projects. In mature fields, we're committing to tripling the size of this business to $9,000,000,000 in the next 3 years. Now this market is often underappreciated, but as you heard this morning, we believe it's going to be one of the fastest growing segments in the coming years.
Production from existing fields is continuing to decline and our customers need help to either extend or enhance production. These fields are also significant cash flow generators and many operators, especially the NOCs lack the technical expertise to unlock the additional opportunity. Halliburton is uniquely positioned to benefit from record to handle the pipeline of large integrated asset record to handle the pipeline of large integrated asset management projects that are coming in the next few years. And finally in unconventionals, we're committing to a 500 basis point improvement in North America margins without help from pricing. Based on the efficiencies and cost improvements that we expect to achieve from Hal Vantage as well as our ability to apply our We're the undisputed leader in the unconventional market and we're not going to relinquish this position to our peers.
You've heard me say this before, better unconventional wells than anyone else in the world. So these are our 3 primary commitments, but ultimately they're just empty words unless they positively impact our ability to deliver on our financial strategies of generating superior growth, superior margins and superior returns. So let's take a look at how we expect these commitments to translate into our financial results. In North America, we see margin contribution coming from several different drivers. Some of those we expect to see in the next few years and there are other items that will eventually come to fruition, but are going to take a little bit longer and are difficult to forecast at this time.
The shorter term bucket includes continued growth in the unconventional market in North America as it further evolves to a more efficient development model. We continue to see an improvement in horizontal service intensity and well count regardless of what the rig count environment is. Next is the expansion of the Gulf of Mexico. We've got a very strong position in the completions market in this area and we have an increased share in the drilling and evaluation business with new rigs that will be entering the market in 20 14. Now as Jim Brown mentioned, we're making a bold commitment today to improve margins by 500 basis in the next 3 years, driven by the execution of our various Hal Vantage initiatives and the growth that we expect our Cipher platform technology to deliver.
But what does that mean for 2014? Next year, we're expecting to gradually improve North America margins over the course
of
achieved over the next few years. Now let me be clear. This is a quarter by quarter improvement in margins accumulating to 200 basis points just from these initiatives and it assumes no help from rigs or from pricing. Now if some of the early indicators are correct, activity increases, we should be able to get our margins in North America into the low 20s by the end of the year. Now over the full cycle, when the market sees a meaningful increase in gas activity, we continue to anticipate pricing improvement that will move our North America margins into the mid-20s.
Now this is a very robust business. North America Now moving internationally, John Lewis and Eric Correa outlined the major near term growth opportunities that we see in both deepwater and mature fields. Now we have the building blocks in place and are well positioned to continue to grow revenues and margins even in a flat pricing environment. As you've seen over the last couple of years, our revenues and margins continue to stair step higher each quarter on a year over year basis. As activity levels continue to improve, we gain additional share.
We've had better fixed cost absorption and we take advantage of technology upsell or pricing improvements as those opportunities present themselves. Next year, we're committing to move margins a step higher into the upper teens for the full year. Now like North America, this assumes no help from pricing. Now pricing, we still believe will come, but we continue to believe that there's not a major inflection in activity or pricing in the near term in the international markets. But when we do get that inflection, we believe our normalized international margins can move consistently into the low 20s.
Now another important point to note is that this year will be very close to having an equal balance between our North America and our international businesses. In the next couple of years, we expect our international business to actually take the lead and it will likely move closer to 60% of our total company revenues. So as you can see the growth in cost strategies we've outlined for you this morning are intended to have a pretty significant marginal impact. But there's more. As you know for the past several years, we've been investing in a series of strategic corporate initiatives that were designed to better position us for significant future growth in both North America and around the world.
Today, 2 of those initiatives are already in place. The global business realignment project and our global sourcing initiatives complemented each other and they were focused on realigning our international product and service delivery for our international customers for creating better access for us to lower cost international suppliers, allowing us to obtain a more efficient use of our field technology and ultimately achieving a substantial a manufacturing capability. And so earlier this year, we opened a completion tools manufacturing and technology center in Singapore and we've moved our product line management team there to oversee the operations. This center has already provided significant savings labor, freight and repair and maintenance. And believe it or not, we're already expanding the footprint to accommodate future business.
Now just a minute ago, Laura Schilling touched on our Battle Red Initiative. This is the 3rd initiative that we've been going forward on, which is entering the final phase of its field deployment in North America. Now quickly by employing proprietary mobile device applications and by digitizing our back office, we'll be streamlining our job execution, our warehouse and our billing processes, 1st in North America, but eventually and ultimately around the world. And although there's some headcount reduction associated with this project, some of which you saw in our Q3 results, the major focus of this initiative is actually unlocking working capital for both the invoicing and the inventory processes. And in just a minute, I'm going to talk to you a a little bit more detail about what we see and what we're targeting for improvement in working capital.
Now the cost of these three initiatives will have averaged over $100,000,000 a year or about $0.08 to $0.10 of annual corporate cost over the last 3 years. And in the Q1 of 2014, initiatives and their costs will begin to wind down. We'll incur about $0.02 to 0 point a the cost will be gone. In addition to the cost savings, one of the indirect outcomes of these transformational initiatives has been an increase in our international earnings and a related reduction in our effective tax rate. Now we achieved a 300 basis point reduction in our tax rate in 20 13.
And we expect to continue to improve our ETR by an additional 100 to 150 basis points over the next few years as more of our business now shifts to Latin America and the Eastern Hemisphere. Now I'd like to walk you through a roadmap as to what our EPS could possibly look like over the next few years based on the commitments that we've talked about thus far today. First, let's start with our 2013 estimated EPS. Then if you add in a conservative growth number for North America and the America and the 500 basis point margin improvement related to our How Vantage initiatives as well as the commitments we made today for international growth and margin improvement alone are adding up to a fairly impressive EPS number that we think can be achievable over the next few years. And this really just represents a base case scenario assuming no meaningful help from pricing or gas activity.
But now if you assume that at some point over the next few years, we get that help and we can get up to a normalized margin for both North America and international, well, it's a pretty impressive story. Now I'll admit the numbers will obviously fluctuate depending on what level of growth you model. This gives you a feel for the potential upside opportunity that we see based on our commitments today around growth, margins and tax rate and tax rate improvement. What ultimately is most important to us is the impact that this improvement in earnings profile will have on our returns and our cash flows going over for the past several years. This slide shows the DuPont return on assets formula.
It's pretty simple formula and believe it or not, it's actually very well known within the Halliburton organization. Margins times capital velocity equals returns. Now I've just shown you how we intend to impact the margin side of this equation. But it's important to also note that we are relentlessly focused on the velocity side of the equation as well. Since this is the multiplier effect on our growth that will ultimately drive more distributable cash.
And in this regard, we also expect to see an improvement in in velocity over the next several years. Now we sometimes get criticized around the amount of capital that we've invested over the last few years. But when you double the size of the company over a 3 year period, it requires significant investment. And remember, we achieved our growth primarily organically, while our competitors' growth happened primarily through M and A. So I'm proud of the fact that during the same time period, we continue to drive a significantly higher level of sales per asset dollar invested than any of our peers.
But as I mentioned earlier, we had to put the building the international infrastructure spend declines. Also in North America, our How Vantage initiatives and deployment will require significantly less capital on location. And so over time, we fully expect this to also be a tremendous driver of additional capital velocity. So we fully anticipate our asset turnover metric to improve over the next few years. This reflects the result of the efficiency initiatives that we put in place that will continue to allow us to generate more revenue for each dollar of CapEx invested going forward.
Now let's look specifically at working capital. And relative to our primary competitors, we currently have an 18 day advantage. Now a day of working capital for us is worth approximately $80,000,000 So when you think about that, that's a $1,400,000,000 advantage that we have in capital efficiency over our peers. Said another way, it's another $1,400,000,000 of additional liquidity that we can either invest directly into revenue generating assets or return to our shareholders. Now even though we've performed well on a relative basis, shareholders.
Now even though we performed well on a relative basis, we still believe we have significant room to For example, our DSOs run close to 80 days. Now our terms certainly aren't 80 days. And in fact, in North America, they're closer to 30 days. The low hanging fruit or opportunity lies at the front end of our order to cash process. It takes us on average 8 to 10 days to issue an invoice.
That's 8 to 10 days before a customer even sees a bill. And given the number of manual handoffs involved, oftentimes that invoice comes back for correction after the customer has had it in his hand for 30 days. Additionally, our inventory management process has been very manual and paper intensive with a lot of inefficiency. So this is what Battle Red targets, driving out that error and automating these manual processes to help us become a leaner, more efficient organization. So from Battle Red, we expect to reduce DSOs by as much as 5 to 7 days.
Additionally, we're expecting our global manufacturing and logistics footprint along with other internal initiatives that we're currently working on to give us an additional 3 to 5 days of help on the inventory and payable side. In total, we are targeting a 10 day reduction in working capital over the next 3 years. Now depending on your growth assumptions for us, this represents roughly a $1,000,000,000 immediate liquidity opportunity. But for us, it also represents a significant ongoing based on the operational commitments that we've made to you this morning. And now you've seen that we have a structural advantage in working capital and asset utilization that we intend to expand over the next couple of years.
But when you combine the expected impact from both margins and from velocity, what emerges is a clear path for our returns to increase to 20% over the next few years. So this is another aggressive goal that we're committing to you guys today, 20% return on capital employed by 2016. Now while it's often underappreciated by the market returns are an important metric to us because the actions necessary to drive returns ultimately influence the amount of sustainable cash that we generate and the amount that we can return to you, our shareholders, in the form buybacks. In that regard, I hope you believe that we've demonstrated a clear commitment to you in 20 13, repurchasing $4,400,000,000 of our common stock and raising our dividend by 39%. But even if you exclude our recent $3,300,000,000 Dutch auction tender, over the past 3 years inside shareholders.
Now if you take a minute to think about the operational commitments that we've made to you today, North American margin expansion, international growth, a decrease in our effective tax rate, a reduction in our working capital metrics and a lower capital reinvestment rate, you'll realize that we're now poised to convert a much higher percentage of our earnings into cash flow, which will in turn allow us to distribute a greater amount of cash to our shareholders. So going forward, our goal is to return roughly 35% of our operating cash flow to stakeholders. 35 percent. That's nearly double our historic trend. And based on the confidence that we have as a management team in our outlook and our commitments, I'm happy to announce that our Board of Directors has approved an additional 20% increase in our dividend in
our
to 20% of net income and we anticipate doing more systematic buybacks going forward. We also expect announcements like this dividend increase to happen more often going forward. So to wrap it up, here are the key commitments that we've made to you today. Clearly, we've got significant upside. Over the next 3 years, we'll grow faster than the market itself.
We'll deliver superior margins and we will deliver superior returns. We're going to maintain our North American leadership position and we're going to compress the gap with our competition internationally. And finally, we believe that we're going to generate significantly higher cash flow, which will result in higher returns to our stakeholders. On behalf of the entire management team, we've really enjoyed the opportunity to share our story with you today. We think it's a great story and it's one that we're very proud of.
And I hope you get a sense of the enthusiasm that we all have, not only for having delivered the track record that we have historically, but also for the focus that we have on continuing to outperform in this upcoming cycle. And I'm going to leave you with one final thought. It's something that Dave mentioned at the first part of the session this morning, but it's particularly important to all of us here. At Halliburton, we stand by our commitments to deliver. Thank you very much.
Now everyone, we're going to take a short 10 minute break and then we're going to come back and we'll have our question and answer session right after that 10 minute break. So very quickly come back and join us for questions and answers.
Run a mic around to you. So who's got Jason, you've got one and who's got the other one over here? Okay. Well, let's just let's go to James to start.
Thanks. So quick question on the 500 basis points in North American margins. I know you said that assumes no price or no help with the rig count. But if you look at the CapEx announcements, they've obviously been in the positive side. So kind of how do you mirror that target with what may actually unfold here over the next couple of years?
Yes. I think obviously we're not don't take the info that Mark put out there as a prediction that we don't expect growth in rig count. We don't expect a growth in well count, stage count or Battle Red initiatives and some of the other initiatives to get in your head just the impact of those on an individual basis. I mean, if you look at, as Mark said, the early indications of capital spend for next year, even with you think about the leverage now with modest rig count growth, stage count going up, service intensity going up. I would expect our business in North America to grow next year plus have the benefit of starting to roll out some of these efforts.
And I think one of the things and I had a couple of of folks ask me at the break sort of the pace of this. You got to remember how big we are in North America and how much change in terms of behavior in the organization we're trying to drive here. We have 30 some 1000 employees in North America. So this is not a trivial exercise to roll this out and to change the behavior, get the headcount reduced, get customers on board with this approach. So this is a multiple, multiple year payoff in terms of how it's going to come.
So but as I said, I don't want you to take the view that we're not predicting price increases. We're not predicting rig count increases. That's all I believe going to come, but we really wanted to bifurcate the impact. You'll make your own choice in terms of where the growth may go. The pricing power may come from.
But what we wanted to basically isolate for you is the 5 points is just going
When you were going through the kind of as you isolate everything without assuming the growth etcetera, the earnings impact on the company, just want to make sure I got this clear around 6 ish, let's call it. And then if you get the pricing growth, etcetera, that's where the number went up to 7.5 to
somewhere in
that range.
That's what that slide should have demonstrated, yes. And then all of our commitments were 3 year commitments. So that's what we're looking at.
So I guess our view James is we sort of provided the stuff we could control. And on the rig count and pricing side, it's going to be market driven. And I think we wanted to give you a sense of the earnings power and everybody will have to sort of put in their own projection of where that goes. When it goes, we're going to take advantage of it and we're going to reap the benefits of it. But there's such a wide variety in this room, I suspect, of the at this point.
But we wanted just to show you the sort of the leverage that we're at this point. But we wanted just to show you the sort of the leverage to earnings power when it does happen. And if it doesn't
you have one back here. I'm sorry.
Go ahead.
Thanks. Wanted to focus on the international side and appreciate the guidance you've given us. It's really helpful. On the normalized margins getting into the low 20s that's essentially getting back to your prior peak without pricing which is great. That's a definite sign of improvement.
Your largest competitors essentially also said that returning to their prior peak again similar kind of assumptions, which implies that you no longer expect to be able to close the margin gap. Do you now feel that there is something structural there? Is that conservatism? Could you give us some color around how that might be different or how you might be able to do that? Or if you don't think you can, that's fine too?
No. I mean I would say absolutely we don't think that that's an impossible goal. I think that we're a competitive a competitive organization and we see a variety of paths there. One is the fact that we do have the infrastructure footprint down now and it really is a matter of getting the contract base to absorb that aspect of it. The second is it was touched on a couple of times, and I think Eric hit on it in particular, is the fact that the international market is rolling more toward the completion side and that's where more of the deepwater growth is going to come from.
That rolls more into our strengths as a company, especially with our completion position that we have. So I would not at all take away from this that we don't expect to close the some of the margin gap. I will be very disappointed if we don't. But I was disappointed on the last go around. So as I said, we're very competitive start start to do that.
So I'm confident that we'll be able to start to do that. So no, we're not that's not something we've given up on.
A key element of closing the margin gap is closing the size gap. So as we continue to outgrow the marketplace, that's going to make a meaningful dent in that differential.
Okay. So the baseline would be getting to that low 20s as you grow into the infrastructure that you build, you would indeed expect to continue to or to narrow that gap.
Yes. And I think just one more add on that. Obviously, if we even when we get back to the sort of low 20s where we were last time, it's on a lot bigger base of business than we had, probably double the size of what we had last time. And again, you just get leverage to our earnings per share power at that point in time.
Thank you. Mark, could you give us an idea of what the frac of the future rollout looks like beyond the 20%? And really I'm looking at it 3 ways. 1, in terms of just from a CapEx standpoint secondly, from balancing of market share standpoint with the kinds of things that you've shown us, obviously, you're growing? And then sort of 3rd, from a manufacturing standpoint, since all that's coming from your own manufacturing, are you going to scale up on that to accelerate it?
So we have there are a number of different things that we have to keep in balance. One is obviously making sure that we're keeping our manufacturing full, continue to utilize that at its most efficient point. Another factor is also looking at how much can the market absorb at any one time relative to what growth expectations we have in the market. And the great thing about having our own manufacturing is that we can be fairly nimble and adjust that at any point in time. The third factor also looking at is as we're replacing equipment in the field, some of that equipment at a point will continue to have some level of useful life.
And so we're also trying to pace ourselves to make sure that when we do pull in equipment, if it's destined for retirement, that it indeed is fully depreciated and really needs to go. And we in our planning, we challenged ourselves this year. We'll continue to challenge ourselves as to whether we add incremental horsepower. If we can put that horsepower out there to work and get a good solid return on that equipment, we'll make that decision along the way. So I would tell you it's variable right now, but I think we'll be about 20% deployed at the end of this year.
We should expect to be about 50% deployed by the end of 20 15 and then it will continue to deploy over the preceding years. Now that is sort of assuming sort of the current level of rig count and not a major inflection in North American activity. If it changed rapidly, you would probably see us dial it up quite a bit get that horsepower out there as fast as we could.
Yes. And I think as you can appreciate, we're not going to lay out a specific roadmap because it's a competitive advantage to us to sort of keep close to the best what our rollout strategy is, how fast, where they're going to show up and things like that. We're not going to sort of broadcast that to the world a year or 2 ahead of time and allow our competition to prepare for it. So I think as Mark said, a set of a variable rollout plan is what we have. We manufacture our own equipment, so we have that advantage.
We have the capital to spend if we want. We've got the market share that's out there if we want it. And we have the ability basically to roll it out at whatever speed we want. And we'll just assess the market as it goes along. And you just think of our manufacturing capability as sort of a volume switch and we'll adjust it as we go.
But I don't think we will lay out any more of a clear roadmap than that because I want to keep the competitive advantage inside.
It's 2 quick follow ups if I may. First, it sounds like no accelerated attrition of the existing equipment is in the plan. And then secondly, is it still a customer driven rollout as opposed to a basin driven rollout?
I would say that as you look at attrition, if that's a question about attrition broadly, we continue to see attrition we think in the marketplace of other equipment and largely due to cannibalization as much as anything else. And I think that that's probably been discussed at some point in the market that frac fleets they have a way of diminishing if they're not being used because that equipment winds up being used to keep equipment in the field working. So yes that's out there as a path. The other that we didn't talk much about was internationally in terms of the ability to move equipment around the world. So as we sort of look at the dynamics there that ability is certainly there for us.
Jimmy, right now we're sending equipment to Saudi. We're sending equipment to Australia. And all of it is basically Australia and all of it is basically refurbished equipment because remember we're replacing the Q10 is replacing a set of pumping assets that's still the best that there is out there. And so by refurbishing the assets that we're taking out of the field, basically we're able to sort of replicate some of our horsepower coverage in other parts of the world for a very low capital cost, because it's basically a refurbished versus a complete new build to basically send into some
of these markets. Angie?
Right here
in the front.
Guys, you did a very impressive job talking about margins for 2014, 2015, 20 16 and this Analyst Day has been very well put together. But if you want to talk about a little bit of your visibility on revenues for 2014 versus 2013 as far as the growth of revenues internationally and in North America? And do you expect internationally that you can continue to outpace your peers at both the top line and at the bottom line?
I think some of the comments made yesterday in the breakout sessions, we're expecting in 20 a more modest growth level than maybe you've seen in the last couple of years. But continued if you look at the market overall internationally, we're still expecting a low double digit growth in the market itself in the North America. Looking ahead continue to see an increase in well count and service intensity that will drive expectations around well count, at least internally in our planning, are fairly modest for 2014 in North America.
And then as a follow-up on deepwater, you said it's going to be driven by new technologies. Is there any area of the world that you still have yet to enter in with full footprint or new customers that you still need to tap into that could also drive that growth?
We've got a lot there's
a lot of runway left for us in the Eastern Hemisphere, if we just look at the gap we have today between ourselves and our primary competitor. But what I would say today is that we are competing effectively in every international market in the world. So are there bits and bobs of footprint that we might need in a particular location? In some cases maybe yes. But by and large we are in all of those basins today.
And more importantly we're competing across the breadth of our service lines today in all of those markets as well. And by that I mean, the full range of drilling and evaluation technology.
Yes. I guess Angie, I'd add to that by saying I think it's really more waiting for the contract rollover opportunities to come available now as opposed to needing to put infrastructure down. Infrastructure. We've built the infrastructure size wise so that we can take on more product lines or larger pieces of existing product lines. So now as I said, it's just a matter of waiting for sort of the contract cycle process to come back around.
Mark a question. How much of the acceleration in returns that you're looking for over the next dollars you spent in infrastructure over the last couple of years?
I don't know that I've calculated specifically, but maybe the way to kind of think of it, our capital spend on infrastructure typically runs about 15% of our total CapEx, but that's historically. Over the last several years, it's been much higher than that. In fact, it's probably been upwards toward 25%, 30% in some of the 2010, 2011 timeframe. So we're just we're expecting it to drop off and be somewhat more modest, which will help on some
of that. And how long will it take for Battle Red to be rolled out throughout the international markets? I know that's much more complex than there's a collection of individual markets, but how long will it take before we really start to see the impact of that? The hard part
and Jeff can address this too. The hard part of the Battle Red initiative was actually having to build the infrastructure. I mean, it all looks great on your iPhone, but somebody had to build that. It's not something you go buy. There's not an app for that.
This is maybe the way to say it. So in having constructed it, we've made that major investment. As you saw, the numbers are advantage. We're going to be finishing rolling it out in the early part of next year and then immediately thereafter start the process of beginning to rolling it out region by region and product by product line across the rest of the world. So it may take a couple of years.
But pacing it, we just want to make sure that we're doing it in a way that what you don't want is a flawed execution rollout. And as you deal with international customers, there are going to be vagaries of the processes that we'll need to capture in the process that may be different from what North America looks like.
Yes. And I would just add to it, Jim, is the
it's a
bandwidth intensive process, because you're essentially to make sure it gets set up and mature a little bit more in the U. S. Before we look at taking it overseas because a lot of places we operate as you well know you don't have Verizon and AT and T and all this great cell phone capability and a lot of it is driven. So we also want some of those international markets to mature a little bit from that standpoint. Yes, Bill?
What was
the thought process behind the 20% increase in the dividend with the 15% to 20 percent target of net income as a backdrop? How do we arrive at the 20 percent increase? And that's an expectation of what with regard to net income when?
So remember our formula for looking at dividends is at least 15% to 20% of net income, right? So that sets a threshold. This doesn't mean that we're establishing a variable dividend policy. But what it means is as not only as we look at what we've done today, but what we look at how we the business will look going forward as well as our cash flow generating capability and what we've done at any point in time. So it's I can't say it's either a look back or a
look back or a
look back or a look back or a look
back or a look back or a look back or a look back or
a look back or a look back or a look back or a at any point in time. So it's I can't say it's either a look back. I mean there is an aspect of that or a look forward. Although there is an aspect of that I think it all comes together with the recommendation and what the Board and as they work with us is to make sure that number 1 we can do that within our commitment not only to them, but to you to live within our cash flows and continue to be capital disciplined.
Yes. Look Bill, Mark's a conservative guy. Let me just talk about this a little bit. Mark's a conservative guy. He said something really important.
It's not a variable dividend plan. It's not coming back down. So I think by nature, we're going to be more conservative as we ramp it up because this is still a cyclical business and we have no intention of cutting the dividend when the business cycles back down. And if you had our intention is to continue to have it march up. But if you get it down our intention is to continue to have it march up.
But if you get a down cycle, it's not coming down. And so I think that by that nature, as I said, one of the reasons I love Mark is he's very conservative and I sleep very well at night with him as our CFO. But I think that has more to do with it than anything else.
Okay. I'll take that.
Fair point. And then the second question, you may have mentioned it. If you did, I missed it. But have we thought about I'm sure you have thought about it. But with regard to your capital spending budget for 2014,
what are your thoughts on that particular front today? Right now, it will go up slightly, but not dramatically. We I've had several people ask us a metric that we do not use is capital to 3 years of doubling the size of the company. And so trying to the last 3 years and doubling the size of the company. And so trying to lock yourself into that doesn't make sense.
The other thing is that because of the wide variety of assets and service lines that we have, the depreciation levels, they're all different. And as we look at the business, what we're trying to do is invest to targeted projects that we see and where we go. So having said that and with the growth expectations that laid out, our expectation is that capital will go up modestly next year, but not much. As a percentage of sales though, remember I showed you the asset turnover metric? That is an important metric to us.
And that we intend to try to continue to improve that asset turnover metric over the next several
Yes.
Yes. Mark, on the 500 basis point improvement in North American margins, roughly how much of that is associated with frac of the future, which is very much under your control? And how much is associated with those other factors you mentioned? I think it was golf growth, service intensity and Cipher adoption?
One of the things that we wanted to do today and sort of rebranding all these initiatives under HAL Vantage is speaking to the fact that it's becoming very, very difficult for us inside the organization to know exactly what's contributing to what. And so going forward, what we want to be able to do is say, look, here's the commitment. We're going to do 200 basis points next year and it's going to be captured by a lot of these different things. The focus of the organization is becoming leaner and more efficient. And everything that we do, everything that we do is designed to drive out cost and increase revenues at least to capture more value for the work that we do for our customers by using Cipher and other things.
And so I can't tell you specifically and probably would be a it would be a disservice because ultimately we won't be measuring it that way.
But I think one important thing, Cipher is in my view Cypher is a revenue growth generation product. It is not something that should be lumped in with Battle Red and Frac of the Future. Cipher is and will drive revenues for us. Battle Red and Frac of the Future will drive efficiencies for us. So I guess I would say mentally put those things into separate buckets because as Cypher gets picked up as a product and is used more and more it clearly will drive market share gains and it clearly will drive growth for us.
It allows to differentially price. Right.
Yes, exactly.
Thanks. As we think about some of the large moving parts here the mature assets, the deepwater, can you talk a little bit about the margins associated with those businesses? Presumably, the deepwater is higher margin than the average company margin. Not obvious from what we've seen, I'd say, over the last 3 years. We hear about it being very competitive.
And then just on the matured assets as well is that above average company margins?
Okay. The if we think about deepwater, again a couple of things happen in deepwater. First is the service intensity is much higher in deepwater. Typically, it's a very competitive space when those awards are given. But because of the service intensity being higher the in reduction and then the uptake of new technology is higher and at bigger volumes.
So that moves it from a margin standpoint up to scale on a relative basis. Mature fields actually from a customer standpoint has some of the fastest paybacks for them. And so we're able to then as we apply technology or design a commercial model that's more valuable for us, it's not hard to make that equally valuable or more valuable for our clients. So I would say when we think about margin opportunity, we have the ability in both of those spaces to create quite a bit of margin expansion opportunity.
Yes. I think let me just elaborate a little bit on it because think between the two markets, here's maybe a different way for you to think about them. The and let's break it at the gross margin level and the operating margin level. In the deepwater, our gross margins are very high. But your cost to have to deliver that gross margin.
The infrastructure you need, the logistics you need, the inventory you have to carry all of those are sort of below the gross margin line. And so you end up with the cost you have to have to deliver that is significantly less than in the deepwater. So you end up at the margin level you do. So I do think one way to think about it is sort of bifurcate your thinking into sort of what is the gross margin in a particular set of business lines and what is the delivery cost against that gross margin that eats into your margin capability. So in the example of deepwater, the gross margins are very good.
But since we've had to build infrastructure, build logistical systems, put people on the ground that has eaten into those margins. A lot of that cost now is being absorbed so we can capture the higher deepwater margins. The reality is deepwater margins in a stable environment are clearly the highest of the 3 business segments we have deepwater, unconventionals and mature. But they're also the sort of most intensive from a service quality and everything else to deliver. I would put mature fields on the other end.
Although the margins are quite acceptable and I think you'd be surprised how good they are, At the gross margin level, it's not like anything like deepwater, but your underlying cost to deliver it is also substantially
less. And then sticking with the mature fields, what part will artificial lift play in? I mean, make clear steps towards ESP business. What about other parts of artificial lift?
Well, the ESP I mean, clearly the ESPs are front and center in that mature field space. And we think we've got a great opportunity here to organically effectively grow the rest of the way with that business. And my best my favorite analogy to that is our testing business, which again was really on the back of very limited acquisition of anything really and the ability to with our footprint grow that. And so as we look at mature fields, clearly that we try we try to look for things where we can create value with technology and the ability to integrate those things into what we do. And we clearly see that with ESPs today in terms of the ability to tie that into some of the technology in fact that you saw acquit it.
All of those would be things where we could create more value with the ESP business.
Hi. A question on Cipher. You gave an example in there about the Barnett. And clearly, you're leaning on your expertise in these different basins. Just curious how you see that rollout happening over the next call it couple of years.
Is that where we should
be thinking about it? I'm just
kind of curious are there certain basins where this is more applicable? Is it more kind of the more mature areas? Can you talk about that a little bit?
No. I think the I mean I'll take it sort of at the high level and Jeff can kick in. That's old saying you go where the money is. And so I think with Cipher, you'll go to the big liquids basins. So Eagle Ford, Bakken, probably Niobrara would be where we'd set a roll out.
As Steve said, the two examples we gave you were sort of beta tests. We've done some alpha tests in the various basins which we showed to you and we really like what we see. So obviously you're going to go to market in 2 places. Those basins where you're seeing the most production increase because you create the value for the customer and those basins where we see the most production and most customers
and today we've painted North America red with respect to that technical capability. So we have that insight and capability really in all basins, which makes it and because that structure is in place, the ability to roll something like Cipher out is really pretty straightforward for us. So it's just a question of at what pace and the machine is geared up and ready to run with that. So pretty excited about it. And even really following on that is the ability to do the same thing with Cipher internationally.
Considering we're talking about targets here in 3 years, what's your what do you think Cipher is going to do in terms of North America? Any idea in terms of percentage of your jobs?
Let me describe Cipher. I described it as how we design wells in the office and how we work. So it's going to create stickier customers. It's going to create margin on its own in some cases, but every bit as effective will be the way use it every day through our system to drive the types of improvements on location. And I think that's one of the things I said at the end, but we believe it's customized horsepower and science.
And the way we use Cipher at Halbert will give us the ability to hardwire those two things together. So it has a lot more leverage for us in terms of revenues and margin when it's baked into the way that we work.
Yes. I think just one last point on that because I think it's an important takeaway on Cipher. And it's something I said, because of the way it's constructed with this artificial intelligence network in it, the more a customer uses it, the smarter it gets. So you got to think to think about embedding a software inside of a computer or something. It's going to be very, very difficult for a customer to go away from us, once they see and are benefiting from Cipher because it means different direction.
Just on the mature fields commentary, so $9,000,000,000 of revenue that's not that far from what you do in the Eastern Hemisphere today. So just help us understand a little bit about the path there, the degree of importance kind of the fee for barrel jobs and just a little bit about the mix and is this all organic? Just some color on how you get there.
Yes. Let me get started on that and then Mark and Jeff can add. I mean keep in mind, yes, it's a pretty it's a large goal and I think it surprised people when we talked about it internally. I asked actually the same kinds of questions because I don't want to get up here in front of you and make a commitment 3 years from now, which I have the intention of standing up here 3 years from now and seeing you, not having met. And so I think as Paul described it, there's really 9 businesses in mature fields.
You have sort of the 3 delivery models market. And all of those are very much growing at a very good rate today. So we continue to expect to see our discrete businesses continue to grow very fast. Probably an artificial lift. But other than that, we got number 1 market probably an artificial lift.
But other than that we got number 1 market positions in a business that's growing faster than the general market is. More and more integrated project management opportunities. The whole business in Iraq basically is on next 3 years. And I can actually pretty easily see my way toward that $9,000,000,000
Yes. And so as we described what that opportunity looks like, it continues to evolve more towards sort of that select few description that I gave you around these large projects. And they are very large and it gives us the ability to control effectively how all the work is done. Done. And so we see more and more of that as the mature field sort of annuity that's been in the market for all these years starts to return to NOCs, that's right in our wheelhouse.
So clearly can see our way there.
Jeff? Keybruch, yes. You have a booming enough voice. Why don't you?
You clearly described the
goals as stretch goals. I'm not sure I completely followed Mark's comments along with the rising red bar there. But I think you said that 2016 was sort of no price, no growth $6 and with price, with growth $7.50 So the question is, what's the biggest risk to coming in below $6? And what are the things that could happen that could bring in above $750,000,000
Mark, do you want to start?
Well, your interpretation of the slide was pretty close, so good review. But I think that as we look ahead, obviously, the biggest growth biggest risk that we see to the profile is always the sort of global macroeconomic I mean that's as Dave described in his opening comments, right? That was one of those things that I think caught us in terms of meeting our commitments around closing margin gap internationally is that the pace of international spend has just been glacial. And it's been sort of a slow and steady increase over time that we've had to really slog it out. And so we're all feeling like that's beginning to turn not maybe I'd call it an inflection, but that pace is beginning to quicken.
But if something were to happen to sort of send the world back into another financial concern that's one of those big those large risks that we could see. Or the other side of it, we also always see that there could be more regulation, right? Regulation across the board around our services is outlook is to not outlook is to not try to make heroic assumptions as Dave said about the markets themselves. What we're saying is look in this kind of environment with a relatively stable growth trajectory from this point maybe even slightly below what we've done before. On the things that we can control, this is the outcomes that we believe we can achieve.
And our I think internally as a management team, we've all said, look, we've got to make our own success here. And this achieve. And and really go after the market focusing on the growth areas that we can go and get our more than our fair share maybe in this point in time with the market and try to capture the opportunities now. So when the market does turn, we can be there. And if the market doesn't, we're going correct me if I'm wrong, but if
correct me if I'm wrong, but if I listen to your answer, I would have thought that you would point to North America as being the more risky part of it that I understand financial collapse whatever on. But barring that, the North American market is still the one that would be the more impacted by some sort of macroeconomic slowdown presumably?
Yes. I mean, I think, obviously, if you saw oil prices drop to $60 or $70 you would see stress in the North American market. We don't expect that to happen. But if you want to envision a downside case, it would be liquids prices in the U. S.
Now if you want to leverage on the upside, if you get gas drilling to relieve some of the pressure on some of the areas that have an oversupply in terms of equipment today, you actually you have way more leverage that way. So as I look at the U. S. Market today, yes, you have some downside risk, but you actually have way more upside case or upside potential and I believe you have downside risk. Jeff, you want to?
I'm going to say not right now. I mean is there opportunity to use this technology to pull things together? Absolutely. But where we believe it has the most impact today and where we're spending our time is in the unconventionals, mostly because we see the most opportunity there. And remember, I'd said it's iterative and interactive.
And I think one of the big differences between onshore unconventionals and deepwater is really the velocity. There's time to drill. They spend a year drilling a well. There's a lot of time to stop and think through that process. The reality onshore is how quickly can we make a decision?
How effectively can we make it? And then can we monitor it on the fly? And so for those reasons, we'll spend our time with Cipher onshore.
Yes. And that's also the thing, Jeff, as you know, the deepwater market is primarily an IOC market and they have a lot of that capability not integrated together, but they really view that that's what they do. With Cipher as Jeff said, so you move deep water, you drill maybe one well a quarter or one well a half year to unconventionals where you're drilling a well every five days. That's where we really see the juice of Cipher at this point in time. But as Jeff said that the accumulation of data, the some of the scientific components of it would be of use in the deepwater.
But as I said, the customer usually has the luxury of time, the ability to study it. And so the velocity benefit that you get out of Cipher would have no value in that part of the market.
Technologies in this industry is glacial as compared to other industries. The way you mapped it out here in terms of the benefit for the customer on Cipher, I would imagine you should have about 50 people banging on your door right now to get inside. Can you give us some general sense how long you think it might take for the uptake of Cipher in the context of the glacial uptake in the past?
This one won't be glacial. The fact is this is we are getting a lot of banging on our door for this capability today. And we control through our own organization. So the ability to roll it out and uptake it, I think additionally will be faster in North America because really the client mix that we have. And I would say that Cipher appeals very much so to the nimble high speed client that wants to use this quickly.
There are a lot of those in the market. And so I think once they see what it's able to do, maybe it takes a little time for them to see what others are getting accomplished, but very quickly the uptake will be there.
Yes. And let me just put one other plug in for Cipher. And it's interesting in that it's actually the first product that I've ever been associated with Halliburton where we've been invited into the boardroom to make presentations about what it can do or have been invited in to sit down with a CEO. He says, tell me about this Cipher or a board that says come in and show us what Cipher could do for our company. That is a powerful selling tool when somebody says the Board we're discussing it with the Board of Directors or we're sitting down with your CEO because they see the power and the benefit of this thing.
So as Jeff said, I think it's you'll see it rolled out relatively quickly.
Robin, do you have
Sorry. Okay.
Thanks. So I wanted to ask also on the Cipher business model. When you determine where to drill, how to drill, how to frac and complete, you are encroaching on the Well,
I would say No, I would say that because we're interacting at all levels in the company, I've had situations where a CEO has said, look this is what we want to do and that message gets sort of delivered that way. And so it's a lot less rub points when it's done that way. But what I think our clients find is that this is information that they can't get otherwise or the ability to make decisions that it's new for them. We have a great business development organization in North America. We work closely with our clients.
And so for that reason, I think they generally don't feel like we're competing with them. What they see is really the value that can create. It makes the whole team look smarter and helps clients make more money.
Yes. I mean the marketing approach isn't get out of the way here comes Cypher. It's here's Cipher. It's a collaborative tool to sit down with you. At the end of the day, these folks are our customers.
They're the ones that are going to buy cementing services and buy the frac and buy the wireline. So it'd be crazy for us to sort of bullhead our way into this and create a bunch of animosity. So as Jeff said, this is a collaborative independent E and Ps in the U. S, they are under tremendous stress today to increase their production, be more efficient, forget about returning cash to shareholders, just stop taking more cash out of the marketplace. And so that's the value proposition to them and it's a very, very attractive one.
Okay. If I may just follow-up with a different question on the international margin issue, which you talked about earlier. In the last meeting 3 years ago, you mentioned three reasons really for the margin gap with your largest competitor, which were sanctioned countries, service mix and high volumes in underserved markets. And I'm just curious if you looked at that today ask the same question what accounts for the margin gap. What would you most cite?
I heard Mark mentioned just sheer size as one aspect, but what would be perhaps the others?
Well, I mean, I would say obviously the size, but the product mix still is an issue. We've made some critical acquisitions in chemicals and in lift, but they're still primarily domestic in North America. We have plans to roll those out around the world. We think that that's still an area that there's some differential margin opportunity and growth that we need to capture. So that is a part of the underlying strategy, particularly around mature fields is continuing to capture that.
The sanctioned country issue as we look at it, obviously, has for the most part gone away. Mean I can't speak specifically to what our competitors have done if they're completely out. But certainly things have changed over the last 3 years in that regard. Yes. And I would just add that underserved markets was
markets was clearly one of the areas. They were underserved by us because we didn't have infrastructure there. Now we have infrastructure there. And as I said earlier, it's a matter of getting a contract base that grows to absorb the fixed costs of those areas. So to get everybody out here on time as promised, we'll go for one more question.
Yes. Just one last question to Jim.
Dave
you talked about preferring I'm sorry.
Dave you talked about preferring
major competitor making a fairly sizable investment to increase its deepwater capability, what thought have you to being proactive in terms of trying to increase your deepwater capability via acquisition? And then maybe just talk a little bit beyond that about do you have a team or an effort underway to sort of proactively address acquisitions?
Yes. We have an M and A group that's really good. We look at a lot of deals big and small. Obviously, I'm not going to tip my hat and talk about what areas and where they might be in. But we go through a pretty rigid analytical process because as we kept talking about today returns are important to us.
And we don't want to chase growth and we don't want to chase acquisitions just to get bigger or just to get product lines if we can't see a way toward getting the kind of returns that we want. So we're pretty judicious in looking at them. But no M and A and even large M and A is not off the table that I have to be convinced, Mark and Jeff have to be convinced that we can see a path because remember one of our three tenants is superior returns. And to do and keep superior returns you also got to do smart and A and that's what we'll do. I mean Mark you want to No, that's absolutely right.
That's the answer.
It's always the returns are the bottom line.
Thank you.
Okay. Well, I appreciate everybody joining us for the last day and a half and look forward to getting in front of you in I guess about 3 years and showing you how we met those commitments. So thank you.
Thanks, Verma. Thank you.