Good day, ladies and gentlemen, and welcome to Halliburton's First Quarter Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Christian Garcia, Vice President, Investor Relations. Please begin.
Good morning, and welcome to the Halliburton First Quarter 2010 Conference Call. Today's call is being webcast and a replay will be available on Halliburton's website for 7 days. The press release announcing the Q1 results is available on the Halliburton website. Joining me today are Dave Lisar, CEO Mark McCollum, CFO and Tim Probert, President, Global Business Lines and Corporate Development. In today's call, Dave will provide opening remarks, Mark will discuss our overall financial performance, and Tim will provide comments on our operations and business outlook.
We will welcome questions after we complete prepared remarks. I would like to remind our audience that some of today's comments may include forward looking statements reflecting Halliburton's future events and their potential impacts on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ from our forward looking statements. These risks are discussed in Halliburton's Form 10 ks for the year ended December 31, 2009, and our recent current reports on Form 8 ks. Our comments include non GAAP financial measures.
Reconciliations to the most directly comparable GAAP financial measures are included in the press release announcing the Q1 results. Note that we will be using the term international to our operations outside the U. S. And Canada and we will refer to the combination of U. S.
And Canada as North America. Dave?
Thank you, Christian, and good morning to everyone. Our first quarter results reflect the sharp contrast between the North America and international markets. Total revenue for the Q1 grew 2% sequentially with a 19% increase in in drilling activity combined with the secular trend toward more service intensive work resulted in a meaningful absorption of the industry's oilfield equipment capacity. This is most evident in stimulation where utilization approach levels not seen since 2,008. This activity rebound provided the opportunity to improve pricing across most of our product service lines as the quarter progressed.
Outside of North America, the
9
as well as the usual seasonal declines in software and direct sales. However, we
also experienced project delays and worse than normal weather conditions in certain markets. We now believe that tangible indications are appearing that barring any major economic disruption, the industry may into 2011. Our balanced geographic and product portfolios have thus far and I believe will continue to serve us well given the contrasting points in the cycles that we have for North America and the international Our strategy remains the same. We will continue to invest in key markets and focus on retaining our strong market share position. Let me now discuss our financial results in more detail starting with North America.
North America revenue grew 19% sequentially versus a U. S. Rig count growth of 21%. Operating income improved by about 120% over 4th quarter levels. The shift toward the the activity in the U.
S. In addition, horizontal directed activity is now 20% higher than the peak levels in the Q3 of 2008 despite the fact that the total rig count is 30% off of those highs. These trends have led to increased demand for our products and services and provided opportunities to negotiate improved pricing for most of our product service lines that is closer to levels necessary for us to generate adequate and Woodford where demand for completion equipment has far outstripped capacity. In fact, in the Haynesville and Bakken, we are now in 24 hour operations and also an increasing number of jobs around 24 hours in the Eagle Ford and other gas basins in the Rockies. These operations are providing us with good incrementals through improved equipment utilization, while enabling our operator customers to utilize more complex fracture treatments at lower overall program costs.
By leveraging this completion demand, we are also able to pull through some of our other services. Natural gas fundamentals are causing concern coming The resiliency of gas production despite curtailed drilling activity from peak levels raises the risk of continued pressure on natural gas prices over the next several quarters. In this scenario, we believe drilling in the unconventional basins will take precedence over drilling in the conventional plays as they generate better returns at lower natural gas prices for our customers. Further, operator hedging positions and the need to drill to hold acreage positions may serve need to drill to hold acreage positions may serve to moderate the rate of the unconventional rig decline. We are also seeing producers shift their portfolio toward unconventional oil in technologies and also matches the service intensity of the unconventional gas plays.
Creates an additional opportunity for us to differentiate ourselves with our customers and Tim will expand on this in his section. This shift to oil plays is clearly demonstrated by an award from a major E and P for its stimulation work in the Williston Basin. This contract is valued at around $750,000,000 and
with service companies
that offer
differentiated technologies. Given these factors, we do not currently anticipate a major correction in the U. S. Rig count, but instead believe that that restrain our ability to achieve significant further price increases and limit substantial improvements in margins for our North America business for a few quarters. However, our Q1 are anticipating modestly improved margins for the Q2 even if activity holds at current levels.
Let me now turn to to our international business and start with Latin America. Latin America posted disappointing results for us in the Q1, primarily due to our operations in Mexico. In our 4th quarter call, we discussed the changing landscape in that country as PEMEX was modifying their spending profile for both onshore and offshore to meet their production objectives. We expected that these changes could have a beneficial implications to Halliburton and decided to keep our cost structure intact to enable us to respond quickly. However, 1st quarter activity levels further deteriorated as new projects and discrete services work have been significantly delayed while also winding down a number of the IPM projects.
If activity levels in the country do not recover soon, we will adjust our cost structure appropriately and may incur some restructuring charges in the coming quarters. Now turning to the Eastern Hemisphere. Eastern Hemisphere revenue decreased 9% sequentially with declines in both regions. Eastern Hemisphere margins declined to approximately 15%. In our Q4 call, we reminded everyone of the typical seasonality related declines that historically occur in the Q1 of the year.
These items were further exacerbated by harsher than normal weather in Russia, the North Sea and certain parts of Asia. Also project delays and lower activity in certain key markets such as Algeria led to a more than expected contraction of our margins in the Q1. Activity declines have also been acute in the U. K. Sector of the North Sea where drilling activity has dropped to its lowest level in 6 years.
We now anticipate that activity may start picking up from the current levels as the continued recovery of capital Hemisphere margins may trough in the Q2 of 2010. We now believe that our Eastern Hemisphere margins should not deteriorate from current levels as any additional impact of last year's repricing of contracts could be offset by the activity rebound from the weather affected areas in new project startups. So despite temperate activity business in the latter half of twenty ten and into twenty eleven, although as we said earlier, it will be uneven among major markets. We are currently seeing growth momentum in project activity as well as an increase in our win rates. For example, we saw Q1 order rates for our completion tools business increased 22% from 4th quarter levels.
On top of that, we were recently awarded a contract from an IOC in West Africa for their upper and lower completions work. This win together with the frac pack and gravel pack completions awards in Brazil we received in Q4 are reinforcing our position in for line toward the latter part of the year and beyond. We have also been awarded an offshore multiple product line contract in Angola for the provision of cementing, production enhancement, completion, wireline and perforating have driven the expansion of our market position. We will continue to direct our resources and capabilities to the more economic and sustainable unconventional plays in North Africa. We will continue to increase exposure to the industry's highest growth markets like deepwater and global unconventional resources.
We'll continue to seek ways to be one of the most cost efficient providers in the industry. Let me turn it over to Mark for some more color on our financial results.
Mark? Thanks, Dave, and good morning. Let me provide you with our Q1 operational highlights. I'll be comparing our first quarter results sequentially to the Q4 of 2019. Our revenue in the Q1 was $3,800,000,000 up 2% from the 4th quarter.
Total operating income for the Q1 was $449,000,000 up 5% from the previous Strong growth in North America offset declines in our international business. Our Q4 2019 results included a $15,000,000 charge relating to a receivable settlement in Venezuela. International margins in the Q1 dropped to 14% with Eastern Hemisphere and Latin America posting margins of 15% and 9% respectively. The margin decline is generally attributable to the seasonality issues and lower pricing that we discussed in the Q4. In addition, we experienced more inclement weather than normal and project delays in certain locations as Dave previously mentioned.
For North America, margins in the Q1 increased from the prior quarter due to strong activity and improved pricing across most basins with overall incrementals above 40% in both divisions. Margins progressively improved throughout in North America margins in the Q2. Now I'll highlight the segment results and note that we have excluded the 4th quarter receivable settlement charge in the operating income comparisons that followed. Completion and production revenue increased 146,000,000 other activity in the North Sea, Russia, China and Australia in the first quarter offset North America's strong growth. Operating income tripled as we have seen activity and pricing rise especially in the deeper shale basins where increased completions intensity has led to the meaningful absorption of oversupplied equipment in the industry.
In Latin America, completion and production revenue was essentially flat, but operating income increased 26% from improved performance in Southern Mexico and Venezuela. In Europe Africa CIS, completion and production revenue and operating income decreased 9% and 37% respectively due to inclement weather in Russia and lower activity in the North Sea and Algeria, partially offset by increased production enhancement activity in Egypt. In the Middle East Asia, completion and production posted sequential decreases in revenue and operating income of 8% and 23% respectively, due operational performance in Oman. In our Drilling and Evaluation division, revenue and operating income declined primarily as a result of seasonally direct sales for Wireline and Landmark as well as lower drilling activity in Mexico and Algeria. The lower activity was partially offset by improved North America results.
In North America, drilling and evaluations revenue and operating income increased 12% and 60 percent respectively as most of our product service lines continue to benefit from increased horizontal drilling, which grew lower subsea and testing activity in Brazil. Lower subsea and testing activity in Brazil. In the Europe Africa CIS region, drilling and evaluation revenue and Nigeria and weather related issues in Russia, partially offset by higher offshore drilling services activity in Norway and Angola and wireline activity in Libya and Egypt. Drilling and Evaluation's Middle East Asia revenue and operating income were down 12% and 41 percent respectively from seasonal declines for landmark software sales, direct sales in China as well as lower activity in Southeast Asia. In the Q1, we completed the mobilization and spudded our first wells for the South Goar project and D and E's improved performance in Saudi Arabia as well as Kuwait and Oman helped to offset some of the seasonal declines in other areas.
Now I'll address some additional financial items. As we discussed in our Q4 call, we took a charge in the Q1 of approximately $41,000,000 to reflect the impact of the recent devaluation of the Venezuelan believer. This charge has 2 components. 1st, a non cash exchange loss of $31,000,000 which is not deductible for Venezuelan tax purposes and second, additional income tax expense in Venezuela for our U. S.
Dollar denominated monetary assets and liabilities of $10,000,000 We continue to forecast that our effective income tax rate for the balance of the year will be between 32% 33%. And and 33%. And finally, we currently expect our capital expenditures for 20.10 to be approximately $2,000,000,000 We have accelerated some of the capital deliveries slated for 2011 into 2010 given our current visibility of the international projects in the latter part of 2010 as well as the equipment we believe will be required to sustain the more service intensive work for our North America business.
Tim? Thanks, Mark, and good morning, everyone. So let me provide some additional color on the secular trends that Dave mentioned. First, the focus on oil and liquids rich gas plays, which is driving increased activity in North America. Oil directed rigs have than doubled from the trough in 2,009 to levels not seen since the 1990s, now representing close to 35 percent of total rig count.
In addition, interest has been quite high for the wet gas basins of the Eagle Ford, Granite Wash, Colony Wash and others, which are not fully represented in these numbers. These assets generate higher returns for our customers than dry gas basins because of their liquids content. Extracting liquids from these reservoirs can be challenging due to their low permeability and require technologies such as high conductivity fluids, high performance surfactants and improved fracture placement techniques like pinpoint stages in the treatment of their wells. The continued growth of stages in the treatment of their wells. The continued growth of activity in these plays may be an important offset for potential weakness in the future natural gas directed activity.
Dave also emphasized the importance of integrated services in providing operators the ability to maximize value from their assets in a lower natural gas price environment. A key Halliburton offering is the ability to calculate and visualize stimulated reservoir volume, determined from fracture mapping techniques, including microseismic monitoring and tilt meter and fiber optic temperature sensing technologies along the lateral section. Visualizing the stimulated reservoir volume in real time enables changes to be made to the stimulation treatment to increase the estimated ultimate recovery. Palo Burton delivers leading evaluation technology to provide operators the ability to minimize stimulation uncertainty, maximize production, and importantly, to optimize wellbore placement to further help customers improve intent to establish a new product service line coincident with the acquisition of Boots and Coutts. Upon closing, we will merge our well intervention services with the assets of boots and Coutts.
This new product service line will focus on growing opportunities in well intervention as operators seek to address their production challenges in both the last 2 years is consistent with our articulated strategy of executing bolt on acquisitions to enhance our market position, coverage and growth.
Dave? Okay. Thanks, Tim. And let me just quickly summarize and then we'll turn it over to questions. The secular trend of service intensity in North America is driving significant improvements in equipment utilization, which is enabling us to implement price increases that lead to strong to strong margin improvement in the Q1.
Going forward, we remain cautious on the natural gas outlook for the next several quarters, but we International activity has been challenging in Q1. However, there are strong indications that are providing us with confidence that a steady resurgence may be underway and will continue as we go into 2011. Our strategy remains the same. We will continue to execute our strategy of investing in key markets where we can leverage the breadth of our technology portfolio. We will strive to retain our expanded market position as the industry transitions into the next cycle.
So let's go ahead and open it up for questions. Yes. Before we open it up for questions, we would like to clarify our statement
our North America, not North Africa. Sean, let's open it up for questions.
Thank Our first question comes from Kurt Hallead with RBC Capital Markets. Kurt, your line is open.
Okay, great. Just on the follow-up that I would have here, you referenced the North American activity now being relatively flat, you think, for the next few quarters. I think heading into the Q1, if I'm not mistaken, Halliburton may have had some concerns that the rig count may have dropped and I've heard numbers anywhere between 150 to 200 rigs. So I guess maybe to look at it in this context, you think the gas rig count will essentially drop from here and then that will be offset by oil? And the follow-up on that means though that you're not going to lose any revenue intensity or service intensity because of the type of oil drilling that's taking place.
I just wonder if you could provide a little more color around the mix shift that we're going to see in North America.
Yes, Kurt, this is Tim. Clearly, we have mentioned on our call and previous calls that we expect the rig count to be range bound over the course of the next couple of quarters. I think we've all been a little surprised at the speed of the shift from dry gas to liquids rich gas activity. And as I mentioned, 35% of the land rig count now is directed in that liquid hydrocarbon range. So I think that we see a couple of things.
We see a negative downward pressure on dry gas. We see some strong hedge positions. We see also the importance of drill to hold and we see the shift towards liquids place, which most of the operators are discussing in
some detail. So we think, generally
speaking, we will see this bound activity, dry gas dropping a little, some strength in liquids and the
On the international markets, you used the word resurgence a couple of different times. What geographic areas do you see surprising to the upside and what do you see potentially surprising to the downside relative to coming into the beginning of
the year? Yes, I think the I mentioned one in particular. I think we're starting to believe the North Sea will come back. Asia was hit with a series of weather related issues in Q1. So I think we see those projects continuing.
Africa continues to be reasonably strong. Middle East is steady. Algeria is a big wild card right now and things are in a little bit of a flux in that country. It's a big area of operation for us. So that would be sort of the one wildcard I see out there right now.
But I wouldn't point to one particular area as being particularly good or bad. I think the indications are it should be increasing just about everywhere in the Eastern Hemisphere.
Okay. Thank you. Our next question comes from Bill Herbert with Simmons and Company.
Thanks. Good morning. Along the lines of your prophecy here of a steady resurgence in the Eastern Hemisphere activity, could you frame the likely margin evolution and really talk about the prospects for incrementals and when could we expect to see some positive pricing leverage?
I think the let's talk first of all a little bit about cost. I mean clearly we have maintained a position in our international markets for a degree of readiness with respect to projects which haven't exactly happened in the timescale which we would originally have planned. So, there clearly is a leverage impact from the cost structure, which is in place. I think secondly, whilst the international market does behave very differently to the North America market. The strength of the North America market does have an impact on the international markets.
And so the tightening of capacity and supply in North America is a favorable impact long term or I should say in the medium term in the international market. So we think there are a couple of variables which cause us to believe that in the Eastern Hemisphere that we have troughed essentially during the course of Q1 Bill.
Right. So getting back to the evolution, understand the trough. Let's start with Q2. Are margins flat to up in the second quarter with regard to Eastern Hemisphere or perhaps a bit better than that?
I think flat to up would be a good description.
Okay. Thanks very much guys.
Our next question comes from Dan Boyd with Goldman Sachs.
Hi, good morning. You mentioned that it looks like demand is outstripping supply in a number of basins in North America, Bakken, Haynesville, Eagle Ford, and I would assume going forward that's where your customers will continue to choose to deploy capital. Are there opportunities for you to mobilize equipment from other regions? Will modifications be required? And how do you see this playing out?
Are we at a point now where the returns are such that it makes sense to add capacity?
Yes. Clearly, there is a tightening and I think there is a general sense in some of these basins that our customers are challenged oriented towards our stimulation equipment than it is for every product line in which we're active. But during the course of the year, we have for the short, medium and long term. And so, we certainly are taking opportunities to relocate equipment where it makes sense for us to do so. And as we have told you previously, we have been adding a certain degree of maintenance capital to our fleet to ensure that we can meet the challenges of very large horsepower spreads, which are in place today.
And then can you just one follow-up I guess on the international market. It did seem that the margins in Middle East, Asia in the D and E division were really the only area that surprised us to the downside relative to what we were expecting. Can you help me understand how much of that was seasonal? How much of it might be related to carrying additional costs as you ramp up for projects in the Middle East? And specifically with that division, with that region, how we should expect margins to play out?
Dan, this is Mark. As we said in the call, one of the largest seasonal impacts that we experienced in the Q1 is always the fall off in our direct sales, which significantly helped the wireline business within D and E as well as our Landmark business as well. And so those two particular changes do have a dramatic impact on the margins for D and E in the Q1. So we should expect some pickup in the margins and the overall activity for D and E as we get on into the year and those seasonal impacts are overcome.
I would just add one thing to Mark's comment there and that is that we did have one large project start up during the course of the quarter in Asia. The start up process was a little bit more protracted than we had originally anticipated and that did impact our costs substantially during Q1 for DNI. Yes.
And also just to add to that, since you're looking at the Asia Middle East region, we also had the start up costs on the South Gwar project, which is up and going at this point in time. And we have the continued ramp up and expense of building out our operations in Iraq. So the Middle East, Asia Pac region basically had to bear all of that cost and a lot of that goes to the D and E division.
Okay. So with that, that should be the one region that shows the most improvement sequentially. It sounds like the only really overhang of start up costs really is Iraq and obviously that's positive for future activity.
Our next question comes from Angie Sedita with UBS.
Great. Good morning. Thanks guys.
Hi, Angie.
Hi. Dave, you mentioned and we've discussed it a little bit already, but tangible signs for a recovery in the international markets in the second half and you pointed to the North Sea as well as West Africa and deepwater. Are you seeing an increase in conversations with your customers? Or could you just give us a little color there on the activity for the second half? And then if you're expecting more of a driver on the activity side and pricing more 2011 or potential pricing improvements later this year?
I think Angie, it's more than conversations. We're seeing projects get awarded. We're seeing rigs get tender and awarded and being moved into places. And so we see these projects actually getting up and moving forward. So I think we see a real a real tangible effect of an increase in activity.
As Tim has said, I think on the margin side, we did not essentially cut back our infrastructure in any big way in the Eastern Hemisphere. And we've got to absorb some of that capacity as this are out there today, our customers are just more confident that they can start these larger projects. And I think it's important to keep in mind in in the international markets, it's primarily an oil driven market. The projects today are very, very large. And so once they get started, there's essentially
no turning back on them. But what
our customers have been sort of the oil price environment we saw through
perfect. That's good color. And then just a follow-up on pricing. Clearly, pressure pumping in North America has been strong in the pricing side. Where else are you seeing some pricing power due to tight capacity?
Is it fair? Is it drill bits, directional tools?
Yes. I think as the numbers or the incrementals in North America would suggest, Angie, that certainly in areas of our drilling really relating to the sort of horizontal activity has been good. And we've generally sort of started to see improvements even in those product lines where activity has led to sort of very poor and slow movement on pricing such as
with Barclays.
Good morning.
Hi, Jim.
Would you seeing in the U. S. Full utilization of your stimulation fleet and I guess pretty full utilization of both directional and cementing, are you to the point where you're actually trying to restrain price increases? I imagine at some point you're going to reach a level that you don't want at all to things to evolve like they did last cycle where you and others followed the market up or cycle where you and others followed the market up or pushed or helped push it up and attracted a lot more capacity. Are you to the point yet where you're really trying to restrain things on the stimulation side?
No, absolutely not, Jim. We're just now getting back to where we think we're earning a reasonable return on those assets. The scenario you outlined is one that did exist sort of in the last uptick. But we had pricing pushed down so far that we just frankly weren't getting our cost of capital back on these assets even though we continue to invest in them. And we're now just sort of breaking through that point.
And we've got to be comfortably above that before we would have any discussions along the line of what you suggest.
And do you sense, Dave, that people in the industry are beginning to add capacity to the simulation business given the heavy equipment, the heavy wear and tear on equipment?
Well, I think Jim, Tim can comment because he watches that closer than I do. But you put your finger right on it. I mean these shale plays, these unconventional plays still continue to be very, very disruptive to the equipment. And therefore, you actually need to build a fair amount of equipment every year just stay in place with your horsepower capacity. We're taking 30,000, 40000 horsepower out to some of these jobs today.
And so the turnover of your equipment and the maintenance cost is dramatically higher than it has been. So you clearly have to bring grinding up. Yes. Just to add to that, Jim, just it might be
7,000,000 horsepower in North America today based on sort of current estimates. And if you think about requirements for maintenance capital around that particular number, it's going to be quite significant. Obviously, at 5%, you're in the range of 300,000 to 400,000 horsepower per year. So certainly, the scuttlebutt is that we're seeing some capacity being added into the market. Lead times for that seem to be in the sort of 6 to 9 month range.
So it would suggest that to us at least that there's probably going to be a muted addition of capital certainly in the 1st three quarters of 2010.
Okay. And my second question, Dave, concerns Iraq. At this point, do you see other there seem to be any concern among your customers that the new government might change the terms on them?
Yes. I think the we are seeing some tendering activity moving forward. And I expect that you would see some awards on that this summer. I think that our customers are taking a bit of a wait and see to see how the new government settles out. I don't think they're concerned that there's going to be a change in terms as much as they're concerned about just getting the delay getting validated by Southern Oil Company or whoever has to sign off on it.
But at this point in time, we're not seeing any diminished enthusiasm for starting up their operations in Iraq.
And Dave, what are you gearing up to in Iraq right now? I think one of your competitors said they expected to have 600 people on the ground at the end of the year. Another one who's been there longer has talked about having, I think, 8 bases in Iraq right now and of course a lot more people than 600. How quickly are you gearing up in that country?
Well, we're in the process of building our first major base there just like our major competitors are. And we also have plans for a series of bases. We know where they are. We're in the process of securing the facilities and the land at this point in time. There's going to be plenty of work in Iraq and believe me all the service companies will have opportunities there.
So we're going along at the pace we want and we're confident we're going to be successful.
Okay. Thank you.
Our next question comes from Bill Sanchez with Howard Byle.
Thanks. Good morning. Tim, just to follow back up on the 2nd quarter margin expectations, I guess North America. The R and M that you mentioned here, I guess one would expect given that March was probably a very, very good month and that margins were, I guess higher than what you average for Q1 North America, even in an environment where pricing from here doesn't improve radically, but margin improvement should be pretty healthy. And it sounds like it's more muted than what one may expect.
And I'm just wondering how much of the impact of that R and M now are you actually going to start seeing in 2nd quarter as opposed to what maybe you guys might have thought would have tempered Q1 margins or incrementals a bit?
Yes, I think this is Dave. Let me put a little more color on that. First of all, we're seeing our vendors, our proppant vendors, sand vendors, etcetera, start to want price increases. So we will have some inflationary pressure on that side of the equation in terms of us getting pricing increases. Our vendors are
going to
want some price increases. Clearly, we are the price leaders, especially in stimulation in North America. And your observation is absolutely correct. Our margins in March were higher than the average margins that we had for the quarter. I mean, we're not going to telegraph where our exit margins were or where we believe they can go just because as the as expectations down.
On the other hand, your rich gas and your expectations down. On the other hand, your rich gas and your oil plays push expectations up a little. You throw a little inflation in there and we really want to get through another quarter to really get a more accurate view of where this can go a lot of the repair and maintenance stuff, we're incurring that right now anyway.
Okay. And just as a follow-up, you mentioned you're the pricing leader on stem. Is it safe to say you've also been gaining share here so far this year and expect that to continue into this quarter?
We believe so, but we'll probably know within over the next couple of weeks whether that's true or not.
Okay. Thank you.
Our next
a factor in the drilling activity, I'm having a hard time reconciling that with your other comment about the capacity constraints are limiting your customers' ability to get their work done in a timely fashion. And I guess, maybe there's no difference there, but if there's a lot of drilling going on to hold leases, I guess I'm not quite clear why there's urgency to move forward with completion.
I think, Jeff, our concern clearly is is that the current gas pricing fundamentals don't seem to support the degree of dry gas activity which is under more liquid areas, more liquid areas, including sort of true oil shales, there is a significant amount of intensity associated with the delivery of those jobs. And so we're essentially shifting from a gas environment to an oil environment, which has a higher degree of intensity. So I think that's the shift that you're seeing. But I think that most of us would believe that we will see some softening in the rig count for dry gas, which will clearly relieve the pressure on overall service
than where they're maybe sitting right now. But it sounds also as if you expect that pullback in dry gas drilling to be primarily conventional reservoirs and may not have any negative effect on Halliburton's financial performance?
That's certainly possible though. Current rig count performance sort of would indicate
that even locations like the Haynesville are actually dropping a few
next question comes from Robin Schumacher with Citi.
Thank you. I wanted to turn to Mexico for a minute. Of course, you 1009 and running well below that level now. But how confident are you that activity will pick up later this year and avoid situation where you need to address your cost structure there?
I think clearly we for the long term, we have a very strong feeling about potential in Mexico. However, as we told you, I think during our January call, we're basically holding on to our cost structure in Mexico in anticipation of a number of projects which would be underway in this timeframe, Q1, Q2 timeframe. The lab process, which we discussed in January, is underway, but it is not going to lead to meaningful market given the earlier with the rate of development of the market given the cost structure and activity which has been underway in course of 2,009. So we will monitor the process during the course of Q2 and take action accordingly.
Okay. And on the integrated project management in the Chacontipec field, have you worked out all the aspects of incentive based fees for that kind work. In other words, if you develop clearly superior ways of drilling and completing Chacontaec that you are going to share in the the economic benefits of that? And exactly, I'm just asking your understanding of how that's going to work now?
Well, really the focus today is the concept which Pemex are calling a lab concept, which really gives an opportunity to take a close look at subsurface and to really establish whether or not there is a better way to prepare locations essentially to plan wells as well as to drill and execute them. So this is a collaborative approach together with Pemex to try and identify more productive segments of the reservoir section that might ultimately improve the overall economics for them, which as you know has been a challenge. And so we continue to work very closely with Pemex in that regard. And clearly, the combination of subsurface expertise combined with drilling and also completion expertise is going to be the key differentiator for companies going forward.
But I think Robin to answer the question, the reason they're calling it a laboratory is that we are going to experiment with what may be the best way to drill and complete and produce these wells. And it would be at the end of these laboratory experiments that they will choose 1 or 2 companies to work with. And at that point in time, you would work out the incentive based structure that you would use going forward. So these labs don't really that in there. It's to establish the baseline of what you might be able to do going forward and how you will benefit from that.
Okay.
Our next question comes from Brad Handler with Credit Suisse.
Could you guys give us
a little more color on Algeria? I don't want to overstate its relevance, but it does seem that the political quag mire and you haven't made any comments about sort of assessing your commitment to there. So if you could shed some light on that, I'd appreciate it. Yes.
Algeria is a decent sized market for us and for the industry, but it's also a very high cost market. And so you have to have a base of business there to get the kind of return base of business in terms of revenue stream to get the kind of returns you want. And because of some of the issues that are going on within the government and within SonaTrack, a lot of the decision making that would normally move your business along, I. E, the awarding of contracts, the extension of contracts, the approvals of subcontractors etcetera is not going on. And so there is another situation where we are essentially fully invested and have a very good business, but a very high cost structure and the revenues right now are not sufficient to overcome that
and we're just going to wait for the
politics to play out. And and we're just going to wait for the politics to play out and then we should be able to resume our activities there.
That's reasonable. Do you sense that does all the leadership have to be kind of released before these projects can move forward or is there some middle management process that can kind of progress the projects?
I think what they just have to do is get a etcetera and then we can move forward. I don't know what the governance inside of SonaTrack is on that, but we're hopeful that it will be happening fairly soon.
Okay. An unrelated follow-up please. The 2 big contracts that you mentioned, the $1,300,000,000 Angolan work and your Williston Basin award, can you tell us over what period of time you expect to recognize those revenues for both?
Good question. I believe that the Angola contracts will be over about a 6 year period. The North America contract is I think 4 years.
That's great. Thanks guys.
I'm not showing any other questions at this time, gentlemen.
That's good. That will do it
for us. Before we close,
we would like to announce that Halliburton's Q2 2010 earnings conference call will be held on Monday, July 19, 2010 at 9 am U. S. Eastern Time. Thank you for your participation in today's call. Sean?
Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.