Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Halliburton Company's third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question, you will need to press star one one on your telephone keypad. At this time, I would like to turn the conference over to Mr. David Coleman, Senior Director, Investor Relations. Sir, please begin.
Hello, and thank you for joining the Halliburton third quarter 2026 conference call. We will make the recording of today's webcast available for seven days on Halliburton's website after this call. Joining me today are Jeff Miller, Chairman, President, and CEO, Shannon Slocum, Executive Vice President and COO, and Eric Carre, Executive Vice President and CFO. Some of today's comments may include forward-looking statements that reflect Halliburton's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2025, quarterly reports on Form 10-Q, current reports on Form 8-K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by law. Our comments today also include non-GAAP financial measures.
Additional details and reconciliation to the most directly comparable GAAP financial measures are included in our third quarter earnings release and in the quarterly results and presentation section of our website. Now, I'll turn the call over to Jeff.
Thank you, David, and good morning, everyone. I am pleased with Halliburton's third quarter results. Our revenue exceeded our expectations, and we took important steps towards improving our margins. Here are a few highlights from the third quarter. We delivered total company revenue of $5.7 billion and adjusted operating margin of 12.8%. International revenue was $3.5 billion, an increase of 9% year-over-year. North America revenue was $2.2 billion, a decrease of 9% year-over-year. During the third quarter, we repurchased approximately $250 million of our common stock. Before Shannon covers our operations, let me share my thoughts on the market, an early view of the year ahead, and Halliburton's business today. Let's start with the market. We are another three months into one of the largest energy disruptions in history. Commodity prices remain elevated, and geopolitical uncertainty is high.
The world has lost an enormous amount of oil supply, and the shortfall continues to grow. Current estimates are that nearly 3 billion barrels of supply have been lost since the conflicts began, and that about 1 billion barrels have been drawn from global inventories. I expect the work to restore production, rebuild inventories, and strengthen energy security will drive multiyear demand growth for oil field services. Turning to our outlook for the business. Our early view of 2027 for Halliburton is revenue growth in the mid-single digits and operating income margins to expand about 200 basis points or to about 15%. Let me share with you what underpins my view and how Halliburton's business today makes me confident we will achieve those results.
First, as a result of years of deliberate strategy and investment, our international business, in fact, all of our businesses outside of North America Hydraulic Fracturing, are the strongest they have been in many years. These businesses are growing, profitable, and winning on technology and our collaborative value proposition. My confidence is rooted in their strong execution, and I am excited about the pipeline of opportunities in 2027 and beyond. Second, I want to put North America Hydraulic Fracturing in the proper context for 2027. I could tell you anecdotes about pricing adjustments and list the reasons I think the North America frac market should improve. What is important to understand is that Halliburton's path to growth and improved profitability that I just described does not require any recovery in North America frac. To us, it is purely upside.
Shannon is going to take you through the operational details of this quarter, but I will leave you with this. I see growing multiyear demand for oil field services. I see Halliburton delivering growth and margin improvement, and I see any North America frac business recovery is upside. With that, let me turn the call over to Shannon.
Thanks, Jeff. Let me start with international. Our third quarter revenue was $3.5 billion, up 3% sequentially. Much of the strength this quarter came from growth in our D&E division, which significantly outperformed our expectations on the top line and improved operating income margins 150 basis points sequentially. Let us get into the details. I will start with Middle East. The conflict clearly creates near-term uncertainty, but I am pleased with our third-quarter performance. Middle East results improved sequentially despite inflationary headwinds, which we expect to persist for some time. In the fourth quarter, I expect Middle East revenue to grow both sequentially and year-over-year. Of the many things driving those expectations, I will highlight two: a full quarter of Jafurah completions activity and an expanded share across integrated and discrete services in Saudi Arabia.
Outside of Middle East, Halliburton's international business is winning work, and we are delivering on our growth engines in a healthy market. We expect 2026 year-over-year growth in these regions to be about 12%. Let me say a word on why we win. Our value proposition is simple but powerful. We collaborate with our customers, and we engineer solutions that maximize the value of their assets. We differentiate on technology, and we deliver on execution. When customers award work on technical merit and total cost of ownership, Halliburton wins. I'll give you two examples from this quarter. The Bumerangue Appraisal program for BP in Brazil and the Cronos ultra-deepwater gas development for Eni in Cyprus. In each case, customers chose Halliburton for our technology in drilling, automation, formation evaluation, fluids, cementing, and completions, and importantly, our ability to collaborate with our customers early in the development cycle.
Next, let me give you a brief update on our growth engines. Production services, drilling, unconventionals, and artificial lift. Each is a market we believe will grow faster than the industry as a whole. We are tracking to our target of $3 billion of added annual revenue by 2028. This is a global target, but we see concrete evidence of it materializing as awards move to start-up. In production services, we expect our North Sea stim vessel to begin operations at year-end. In unconventionals, we expect our first ZEUS fleet in Argentina to start up in the fourth quarter as planned. I want to take a moment to highlight artificial lift. In Argentina, we won a multi-year ESP rental contract with a major operator, our largest award of the quarter. With another customer, we delivered our first unconventional installation.
This quarter, we also made our first installations in U.A.E. and offshore Congo, and we received our first order for an offshore ESP in Brazil. I'm excited about the accelerating growth of our international footprint. One more market I want to mention is Venezuela, where we are open for business. Our management team is in place, our facilities are open, key equipment has moved, and we generated revenue in Q3 in multiple product lines. Venezuela is a market we know well. Based on customer conversations, I expect to see solid growth moving forward. To conclude on international, our value proposition is winning. Our growth engines are delivering, and I am excited about the year ahead. Turning to North America, third quarter revenue was $2.2 billion, down 5% sequentially. The frac market did not recover as strongly as anticipated, and our results reflect this.
We run North America Hydraulic Fracturing for returns, not share, and in the third quarter, we moved several crews to new customers at better pricing. These moves created more downtime than we anticipated and weighed on our performance in the region and our C&P division. In North America land, our Sperry Drilling services, drill bits, and drilling fluids businesses grew 23% year-over-year, well ahead of the rig count. Let me tell you what that looks like in each business. In drilling services, the trend is clear. Longer laterals, more complex wells, and more rotary steerable drilling. iCruise delivers on all three, and we see strong demand in all sales channels. In drilling fluids, Baroid also wins in long laterals, where wellbore stability can decide how fast a well gets drilled. We see growing adoption of our high-performance fluid systems.
I expect to see this growth continue as wells get more complex and customers demand greater efficiency. In drill bits, our performance-driven technology is paying off. One example of this is HyperSteer, a bit engineered to run with iCruise and deliver maximum steerability and speed, where North America drill bit revenue per rig is up double digits from the first quarter. Bottom line, North America production requires progressively more complex wells, and more complex wells means more growth for Halliburton. Let me close on North America with how I think about this business as a whole. It generates solid cash flow. Over the last several years, we have made deliberate choices to reduce our exposure to commoditized activity and differentiate through technology. Today, both our drilling and completion businesses are more differentiated than ever before.
Before I turn the call over, I want to thank our employees in more than 70 countries for their focus on our customers' safety and execution. With that, I will turn the call over to Eric to provide more details on our financial results. Eric?
Thank you, Shannon, and good morning. Our Q3 adjusted net income per diluted share was $0.60. Q3 revenue was $5.7 billion, adjusted operating income was $731 million, and adjusted operating income margin was 12.8%. Let me share what we saw in Q3 relative to our expectations. First, in our C&P division, revenue and operating margins were both below our expectations. This was primarily due to lower-than-expected activity in North America Hydraulic Fracturing land and Argentina and a slower start-up of a new contract in Saudi Arabia. Turning to D&E, we delivered better-than-expected revenue and operating margins led by U.S. land, Middle East, and Latin America. As expected, we saw a more favorable revenue mix during Q3 and higher incremental margins, resulting in stronger overall margins than anticipated. Turning to other financial items in the quarter.
Consistent with our expectations, free cash flow in Q3 was down from Q2 level, but we expect sequentially higher free cash flow in Q4. Capital expenditure for Q3 were $266 million. For the full year 2026, we expect capital expenditures to be about $1.1 billion. Moving on to our forward-looking expectations. Starting with an early view of 2027, we expect Halliburton to deliver revenue growth in the mid-single digits. This assumes a flat North America, Middle East activity in line with the second half of 2026, and steady growth in other regions. We expect operating income margins to expand about 200 basis points or to about 15%, driven by margins firming up in our core business, the start-up of new work, our cost reduction program, and the ramp down of S/4.
On this last point, I am pleased to announce that we are now live on S/4, completing a major global transformation. I expect this is the beginning of further simplifying our business processes, adopting AI at scale in our back-office functions, and driving further cost reductions. I want to thank the teams around the world who made this possible. Turning to Q4, we expect total company revenue to remain approximately flat to Q3, around $5.7 billion, and operating income margin to improve about 70 basis points. As a result, we expect Q4 earnings per share to be approximately $0.62 - $0.64. Let me provide some color on the guidance. In our C&P division, we expect Q4 revenue to increase 3%-5% and operating margins to improve 75 - 125 basis points.
The main drivers are stronger performance in Latin America and the Middle East, higher seasonal completion tool sales, and steady frac activity in North America land. In our D&E division, after a strong Q3, we expect Q4 revenue to be 3%-5% lower and operating margins to be flat to up 50 basis points. We expect margin improvement across several product lines and a more favorable product mix. I will now turn the call back to Jeff.
Thanks, Eric. Here are the important takeaways from today's call. Halliburton delivered a solid third quarter. Revenue exceeded expectations, and we took important steps towards improving our margins. Based on our early view of 2027, we expect mid-single-digit top-line growth and operating margins of about 15%. I am confident we will deliver revenue growth, margin expansion, and leading returns for our shareholders. Let's open it up for questions.
Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press star one one again. Again, if you have a question or comment, please press star one one on your telephone keypad. Please stand by while we compile the Q&A line. Our first question or comment comes from the line of David Anderson from Barclays. Mr. Anderson, your line is open.
Thank you, and good morning, gentlemen. Within your 2027 framework that you provided, can you talk a little bit about the Middle East in terms of how you see that trending? It's increasing this quarter and in fourth quarter, which seems to be kind of going against trend. How does that sort of play out in your mind over the next couple of quarters? Also within that guidance, that 200 basis point margin improvement, I'm curious how much international unconventionals are impacting that. Is that starting to be a driver for margins yet?
Yeah. Hi, David, it's Eric. Let me kind of provide some high-level view on the margin improvement first, and then I'll hand it over to Shannon to discuss the Middle East part of your question. Again, important to understand that the view on 2027 is an early view. It is based on two major assumption. One, which is our business in North America is flat, and our business in the Middle East is flat to H2 2026. If we walk through the numbers from a very high-level perspective, we should finish 2026 at about $22.5 billion. The growth we indicated for 2027 means about a billion dollar and change additional revenue. 200 basis points in margin means about $500 million - $600 million in operating profit.
About half of it is going to come from cost savings, operating cost savings, structural cost savings, and the ramp down of the SAP S/4 program. What remains is basically incremental margins on the additional revenue of about 20%-30% range. We think that's a very reasonable assumption. That's at this stage how we get to the 200 basis point improvement in margins.
Yeah, Dave, good morning. What we see in Middle East, I'll start with there, and then I'll move to the unconventional question, is that region has been incredibly resilient. It's obviously highly fluid right now. But we see a good market moving forward, as Eric said, flat to H2 next year. But if you look at really the things that we have won over the last year or so, restarting in Jafurah on unconventionals, the re-entry work that we've won, integrated offshore work our Iraq. We've seen Iraq starting to get busier, and we won some work there, as you know, with IFMS. Also the expansion of artificial lift throughout the region, both Saudi, Kuwait, Oman and Iraq. All of that work we see as accretive to our business.
We're really pleased with the direction of travel for our business and also believe that's an important market to the operators there, but also important market to the world. We see that staying busy throughout next year. As it relates to just unconventionals, as far as next year, we're really excited the direction we're going. We're now operating in over six countries around the world, plus Argentina, Algeria, UAE, Kuwait, Australia, and Saudi, and adding a few more. I think what's important is the work we're winning in unconventionals. It's not about the horsepower. It's about the technology and some deliberate decisions we made in those investments, and that's part of the reason you see that growth in unconventionals for us.
Appreciate the color, both Shannon and Eric. A follow-up here, related to that would be on Latin America. It looks particularly interesting for 2027. I was wondering if you could talk about some of the specific opportunities that you're seeing over the next few years. Argentina, as you just mentioned, but we also have Mexico, which seems to be doing better, and Venezuela is being talked about quite a bit. Could you address some of the upside that is potentially there for Latin America, not just in 2027, but beyond?
Yeah, Dave. I say interesting, but exciting. We believe Latin America will lead the charge for growth for us. Certainly in Argentina, with the unconventional growth we've seen. As I mentioned in prepared remarks, Venezuela, we're open for business, bases are open. We'll be delivering a dozen-plus ESPs to a major customer in Venezuela. Mexico, probably not an H1 recovery. It'll stay fairly flat, but opportunities in H2. I don't want to forget about Suriname in this conversation. We have won some significant work between TotalEnergies and PETRONAS in an integrated way. I think if I look at Latin America, a lot of the work they're winning is really centered around our value proposition. It's how we engage with our customers and also their confidence in our ability to execute.
Appreciate it. Thank you very much.
Thank you. Our next question or comment comes from the line of Arun Jayaram from JPMorgan . Your line is open, sir.
Yeah, good morning, team. Jeff, fairly unusual for Halliburton to provide kind of outlook comments at this time of the year, particularly prior to budgeting season from the big oils integrated and E&Ps. I guess my first question is what gave you and the team confidence to provide this revenue and margin guidance this early in the season? And maybe just give us a sense of how confident you are to deliver, call it that mid-single-digit growth, and the 200+ basis points of margin expansion.
Thank you, Arun. Look, I wanted to help you see what I see. That is the primary driver here. I don't like where margins are today. And we've made specific choices around cost structure, and I believe and confident that the direction of travel for margins is up, and wanted to make sure that I shared that with you sooner rather than later, and also make clear that this outlook, this plan, does not depend on a North America frac recovery. From a confidence perspective, look, Halliburton's international depth is meaningful. You heard Shannon allude to a lot of it, and you've seen the growth. The adoption of technology that we've worked on for a number of years is meaningful. We are seeing solid, steady drumbeat of technology adoption around the world. We've got confidence in the cost structure in terms of actions we've taken and also SAP being implemented.
Got a lot of confidence in our core business and the kind of technology that's being adopted. And then finally, it's the pipeline of new work, and we see it. It's moving from contract award to start-up and then to execution. That's happening. And I suppose finally, the energy security is a real thing, and I know we're heading into an upcycle. And so that all gives me a lot of confidence around 2027. As I said, wanted to make sure I shared that with you sooner rather than later.
Great. My follow-up is on North America. We have observed a pretty nice rebound in the rig count, yet completion activity has been quite measured. We do know a lot of the rigs being picked up are by private E&Ps and not the publics. Jeff and Shannon, can you talk a little bit about the disconnect, and when do you see this translating into incremental demand for frac? Understanding that you've outlined some pretty conservative expectations of, call it, a muddle-along scenario today.
Yeah. Shannon here. We see roughly 40 rigs being added in North America. So we have seen an uptick, as I've mentioned in prepared remarks, around Sperry bits and mud and the 23% growth we've seen just in Q3 alone. We have seen privates adding and increasing their activity on the unconventional frac side of things. Our customers right now are in the middle of their budget cycle. But we are seeing some really good anecdotes that's playing out right here in front of us. For example, we just had a big customer go in tender and only one service company showed up. We had another customer call us back and extended our e-fleet with price and then added another fleet on top of that. We had several increases of prices throughout the quarter.
We're seeing those indicators, and we do know it is a very tight market, and there's not a whole lot of capacity out there. When we think about 2027, again, early days as far as looking at 2027, but we see there's a real opportunity for growth in frac in North America next year.
Great. Thank you.
Thank you. Our next question or comment comes from the line of Steve Richardson from Evercore. Mr. Richardson, your line is now open.
Thank you. I was wondering if you could just follow up on that last question a little bit, Shannon, if we could, on North America Hydraulic Fracturing. Do we need to see your big customers pick up activity to be a little bit more pointed? Are you seeing enough momentum in the market with broader activity that that pricing comes through? Can you talk about how anomalous was 3Q from these moves and repricing that was going on?
Yeah, Steve, on Q3, there was white space that we saw, and that was a good indicator. That white space was not dead time. It was us actually making deliberate choices to move crews around at a higher price. That is first. We are seeing Q4, you will have some level of seasonality, but we are seeing that tight as well as far as white space. I believe the bigger customers, the bigger operators, we have actually here over the last week seen indications of some of them going and looking at their frac schedule next year and actually have gotten phone calls. All it takes is really one or two of these guys to put together a sizable program, and that changes things for Halliburton and will benefit in a big way.
Got it. Thank you. Then perhaps another follow-up on the Middle East. Appreciate your guiding flat activity with the second half of this year of what we have observed. Can you talk a little bit about the incremental cost that the business is absorbing right now, and if there is a cessation of hostilities and things start to normalize, is there some upside international margins there just from those costs rolling off?
Yeah, there is certainly an increased cost with just logistics and getting materials to location with everything going on within the Strait. We have built all of that cost assumptions into 2027, assuming that will continue. I see the upside really in, if you look at H2, it is times two really. That is up year-over-year, so we see growth there. But more importantly, the growth we see is from our core business, some of the awards I have mentioned.
Thanks very much.
Thank you. Our next question or comment comes from the line of Saurabh Pant from Bank of America. Mr. Pant, your line is open.
Hi. Thank you. Good morning, Jeff, Shannon, and Eric.
Hi .
Good morning, Saurabh.
Hey, Eric, I think I heard on 2027 margin improvement, the 200 basis point. I think you were calling out half of that is from cost improvement, just the SAP roll-off. Maybe can you dig into that a little bit for us, Eric? How much of that is SAP roll-off versus cost-cutting? Then just in general, when we think about 2027 margin, I think there are several cross currents. These cost savings initiatives, but there are also some pricing headwinds. We are in a pretty inflationary environment, and yet you are able to deliver these kind of margin improvements. Maybe just unpack that a little bit for us, Eric.
Yeah, Saurabh, if we start with the cost reduction, which I say was about half of the improvement in margin in 2027. So some of it comes from the cost rightsizing exercise we did in Q3, which you can look at being partially operational costs and partially structural costs. So the structural cost will remain until we decide otherwise. Operational costs sometimes tend to address imbalances in terms of product lines or geographic revenue growth mix, so these might come back up over time. But we estimate overall that the cost reduction will be between $100 million and $150 million for next year. In terms of SAP, we have been spending about a little bit over $150 million a year. It will not go away in one go because we have to maintain some level of support as we transition to the new system and make sure everything works fine.
Overall, the savings are estimated to be anywhere in between $120 million and $150 million.
Give or take will be around $250 million, $300 million coming from cost savings. The rest of it is, as I mentioned earlier, very reasonable assumptions on incremental margins from our core business. Yes, there are inflationary pressures. Some of them are already built in our Q3 numbers and our Q4 numbers. We don't necessarily expect to have a lot more inflation from there. Offsetting that also, we are not assuming a meaningful pricing increase, and we are seeing pricing firm up. All in, we believe that our view of 2027 is a very balanced view with what we know today.
No, that's very helpful, Eric. Thank you. It does seem very balanced. I agree with that. The second one, maybe Jeff or Shannon, if you want to answer this. You did have some comments in your prepared remarks about Venezuela. I think you were talking about expecting solid growth going forward, and we know you signed a couple of MOUs recently with a couple of customers in the country. Just maybe talk to that a little bit. How big could Venezuela be, how fast could this move, and how should we think about this opportunity for Halliburton?
Yeah. Good morning, Saurabh. Shannon here. Yeah. As I said, we are open for business. Team is in place, facility's open, and equipment has moved. We're getting multiple inbounds, and you've probably read all the reports that I have. A lot of major operators, Eni, TotalEnergies, Chevron, Repsol, all looking at have either entered or will enter. The work that we started with has been primarily interventions as we expected. Just in the quarter here, we'll have 12 ESPs being delivered. As far as size, before we lift Venezuela, it was greater than $500,000,000 business. We see that tracking to being a sizable country for us in the future. That won't happen overnight, but we do like our start to the year, and it trending that direction.
Okay. No, that makes sense. The fact that your portfolio is fuller has a lot more production in it. I think that should be helping as well. That's very helpful, Shannon. I'll turn it back. Thank you.
Thank you. Our next question or comment comes from the line of James West from Melius Research. Mr. West, your line is open.
Hey, good morning, guys. Lots of good color already on the call. I wanted to dig in on two points. One is on the Middle East. Your guidance assumes flatlining from second half, which is obviously better than 2Q, but no growth. If we were to see some type of resolution here, what could that growth look like? Or maybe another way to think about it is what was the level of activity or where you are relative to where you were pre-conflict?
Yeah, James. Thank you. Look, we've taken a view that we've got a great line of sight to what we know is resilient, and that's how we think about 2027. If things were to resolve immediately, somehow dare to dream would be my comment. I think we'd see solid growth. I don't know how to even forecast that under the conditions we're under today, other than what we have line of sight to. Obviously, a good business where we've done a lot of really good work. We've won some important contracts, and I think that if that were to somehow go away, the core business, sort of the ongoing core business would blow up pretty quickly.
Okay. On North America or U.S. frac, I guess, more to the point. You have moved equipment out because you did not like the returns and the pricing. Sounds like from Jeff, your comments, and other comments, and Shannon's comments that you are starting to see some movement on price. Could you maybe characterize, is this widespread yet? Is it kind of one-off? Where are we? Are we in the early days of that pricing cycle? Are we getting to that pricing cycle? You guys dominate the market, so where do you think we are in that cycle?
Yeah. Hey, what we have seen really starting in late Q2 is a steady progression of conversations on starting at the privates on more activity. Being opportunistic of really where the strip was at that time, and some operators that have hedges and saying, "I can create some value here.
Right.
What we see right now is more foundational kind of contracts being looked at, and believing that commodity pricing is sticky. That is driving another level, and I mentioned those anecdotes that we have been seeing, and those are real, and we have seen them kind of a steady drumbeat of more of those, and that right there alone has really created some tightness. Like I said, we are the largest in North America, and we are assuming that that is flat for 2027, but we are really excited about the conversations we are having.
Yeah. Let me just clarify or just add to that a little bit just to say that
As we described 2027, that is an assumption that we have made. That is not our view for North America. We are actually quite excited about North America. We run a great frac business. But we do run it differently, because our return expectations are different maybe than what the markets are. So we run it for absolute returns, and we raise price or we lose share. As Shannon said, we are early in the process, but the anecdotes and the activity dialogue absolutely points in the right direction for recovery.
Right. Got it. Thanks, Shannon.
Thank you. Our next question or comment comes from the line of Derek Podhaizer from Piper Sandler. Mr. Podhaizer, your line is now open.
Hey, good morning. Just wanted to revisit the international growth engines you mentioned in the prepared marks. Last quarter, you said you were ahead of schedule. Originally, you talked about $2.5 billion-$3 billion by 2028. Just wanted to hear about your confidence as you look over the next couple of years, and now you are actually talking towards the high end of that range. So what sort of visibility do you have into the different product lines, the regions, maybe split it out onshore, offshore, that is driving this expected growth? Just trying to think about these growth engines as we move into 2027.
Yeah. Good morning, Derek. Yeah, hey, the growth engines first, they are growing and we have a lot of visibility to those. On track and actually ahead of schedule as far as our target. You start with drilling, really love our business. We mentioned two pretty significant awards here in the quarter, both in Brazil and East Med. Those are good examples of drilling moving in the right direction. You look at unconventionals, I mentioned, a dozen plus countries around the world. We've just within the last two months, added two spreads, one in Argentina, and now have Jafurah up and running and have a good runway of over 30,000 stages that will need to be fracked in Kingdom next year. Production services. The stim vessel starts up at the end of this quarter here. And then lift.
What a fantastic story that's been for Halliburton, going from a single country when we acquired it. Now we're in 21 countries and added two countries just in the last year. All of those things are good baselines to the growth and the target I mentioned, and they're multi-year. But I think what's important in this whole conversation, these have been deliberate choices we've made on strategy and choices we made on technology investment that is paying off.
Got it. Great. No, that's super helpful. I know there's been a lot of discussion around the Middle East, more about looking into next year, but maybe if you can help us understand some of the more recent disruptions that we saw, which turned into rig suspensions, both onshore and offshore, conventional, unconventional. Maybe you can just help us with a bit of the state of the market right now, specifically around Saudi, and then maybe how we should think about as we trend towards the end of the year into next year.
Yeah. Derek, hey, the recent, over the last couple of weeks, yeah, it's been fluid. There has been some disruptions. I'd say that the events you've read about have not had a real material impact on operations. We see the rig count holding steady both offshore. You mentioned Saudi. There's a little bit of a dip in rig count in the unconventionals. That's not related to the crisis. We see those building back and see a real runway of activity moving forward. It's obviously very fluid. We keep a real close eye on that, but right now, like I said, the last couple of weeks have not had any impact on operations.
Great. Thanks for all the comment, Shannon. I will turn it back.
Thank you. Our next question or comment comes from the line of Josh Silverstein from UBS. Mr. Silverstein, your line is now open.
Perfect. Good morning, guys. Last quarter, one of the big awards discussed was in Iraq over there. You guys kind of labeled it as transformational for you guys. Can you just discuss a little bit more details on the timing of the ramp, and just talk a bit about the margin profile for Iraq relative to maybe rest of the Middle East?
Yeah. Good morning, Josh. Hey, that project, IFMS project, that is a multi-year project. It is a bit of a windup for a project of that size, but it is real significant work. The start of that project will begin sometime probably H1 of next year, and it will start with more subsurface Landmark studies, those sort of things. This is a full field development, so think of us as going in there and studying the field, understanding where to drill, where to put the pads, and all the infrastructure around it. It is a five to eight-year project, so it will build over time. As far as Iraq, it has been a very challenged market for us, and we see that win and also some activity that is coming that is going to be impactful for us structurally and help improve that market.
The wins you have seen and the work we are going to be doing is not only good for Iraq, but it is good for Halliburton. Just a little bit of a windup on the IFMS work, but excited about it.
Got it. Then maybe just on the offshore front, you have highlighted LOGIX and some closed loop drilling opportunities as key differentiators for you guys. Are these primarily helping you win market share, or are you able to win market share and also gain margin with it as well? Thanks.
Yeah. Hey, we really like our position offshore. Just year to date, we have won about close to $4 billion of work, and we believe all of that is accretive. The acquisition that we made of Sekal has been additive to that automation that you mentioned. You look at the offshore wins we have had. I mentioned the Suriname work with TotalEnergies and Block 52 with PETRONAS, the East Med work. We are going to see robust activity in Norway with $10 billion of investments going into exploration and development, and that is a big market for us. That automation and some of the acquisitions, and really the deliberate focus on technology has helped us pull through a lot of these offshore wins I mentioned. So really love our position globally with offshore.
Hello?
[inaudible]
Still online. We'll go on to the next question. He can come back if he has a follow-up. Our next question or comment is Mr. Scott Gruber from Citigroup. Mr. Gruber, your line is now open.
Yes, good morning, everybody. As I listen to the call here, a lot of bullish data points across the international markets, really from Venezuela to Argentina, deep water, and even your Middle East revenues are growing, which I think is a surprise to everybody. As I think about pricing abroad, you mentioned that prices are starting to stabilize, but what do you think would need to manifest from here for you and your peers to start to see more broad-based pricing gains? If we just see the Middle East activity normalize, would that be a sufficient consumption of capacity across tools and people to complement the absorption that's going on in other markets to start to see some pricing gains? Or what else do you think needs to happen?
I would say pricing has to continue to get better. It's going to be accretive. We see a strong pipeline. This year, we've won roughly about $14 billion of work year to date. Our view is this, is nobody's really overbuilt in this market, so it's tight. What that tightness has really has us in a place where we're making deliberate choices of where we go. Just here in the last month, we had Sperry tools that were three different customers need them. We had to make a choice of where to go. I think the general macro outlook for us, we expect more tightening. With tightening, we think that creates an opportunity for more price. Yeah, we see that as being accretive.
Got it. No, it sounds good. As you turn into free cash flow, you guys have been carrying some extra working capital through the SAP implementation phase. What does that mean for free cash in 4Q, and what's your early read on potential free cash conversion next year as margins improve and your cost base comes down?
Yes, Scott, it's Eric. So look, in terms of free cash flow, we were a little below what we were expecting in Q3. Some of it was due to collections that were a bit lower that has started to fix itself this month. And some headwinds in inventory related to S/4, related to the buildup of inventory for a lot of the projects that Shannon mentioned, as well as some concerns around Middle East logistics at large. If we look at Q4 and the overall year, so for Q4 we think cash flow from operation will be about $1 billion. If you take out CapEx net of sales, about $300 million. So, that lands you at about $1.6 billion of free cash flow for the year. As we look at 2027, we believe that goes up with improved profits generated in the business.
We think as well that free cash flow margins will improve in 2027.
Got it. I appreciate it, Eric. I'll turn it back. Thank you.
Thank you.
Thank you. Our next question or comment comes from the line of Keith Mackey from RBC Capital Markets. Mr. Mackey, your line is now open.
Hey, good morning, and thanks. The release called out Mexico for having improved performance quarter-over-quarter within multiple product and service lines. Can you just maybe give us a bit more color on what drove that and generally what you're seeing in the market in Mexico?
Yeah. Hey, the Mexico business, we've continued to see it improve. I think the macro environment we're seeing into 2027 should be supporting even further activity. Activity is probably, as I said, more of an H2 event, but what has driven really the quarter has been software sales. That really has what's been the impact there.
Got it. Appreciate that. And just secondly, on the 2027 outlook, appreciate the comments you've given so far. Just curious if you could maybe walk us through a little bit about how you might think the results of the U.S. midterm elections might impact your guide, either positively or negatively potentially. Do you think that there could be any impact depending on how the results go, or is it something that we'll just have to monitor at this point?
Look, politics change all the time. I am quite confident in our business under any political outcome. That is not factored into our outlook. I think that macroeconomics and the requirement for energy has never been more acute than it is right now. I think that a lot of quality of life is built around the availability and affordability of oil and gas, which sets up this industry, oilfield services, for a really strong few years.
Okay, thanks very much.
Yeah, thank you.
Thank you. Our next question or comment comes from the line of Sebastian Erskine from Rothschild. Mr. Erskine, your line is now open.
Yes, good morning. Thanks for taking my questions. I appreciate all the color on the call. Just in terms of the guidance, I am trying to back out. So obviously, roughly flat North America sort of implies that international growth of about, call it, 7%-10% year-over-year. Maybe could you give a view of how much of that you already have view on in terms of the contracted work that you have secured over through this year versus how much would be new wins, and some of the other sensitivity around the Middle East? Just trying to get a sense of that building blocks around, call it, 7%-10% growth year-over-year in 2027, assuming based on that assumption.
Yeah. I heard North America and Middle East in there, I believe. Hey, the Middle East business is contracted. We have real good line of visibility to that. In North America, I would say, our frac spreads are all working and busy. Again, we believe that will be modeling right now is just flat for us in 2027. Yeah. Really North America, we think is going to be higher than what we have talked about.
Super. Appreciate it. Just very quickly, just on the guide, just a clarification. I appreciate, Eric, you gave that a number in terms of the 2027. But in terms of the North America base, obviously you have got this sort of unseasonal step up on the fourth quarter. Just in terms of, is that based off the 2026 average or the 4Q exit rate in terms of flat North America?
Is your question around 2027 or is it around Q4 2026?
Yeah, in terms of the flat North America into 2027, is that based off the average of the 2026 or the exit rate for 4Q?
Total year. Total year to total year.
Super. Appreciate it. Thanks very much.
Thank you. I am afraid that concludes our Q&A session at this time. I would like to turn the conference back over to management for any closing remarks.
Yeah. Thank you, Howard. Before we wrap up today's call, let me just close with this. I see growing multiyear demand for oilfield services, and I am confident that in 2027, Halliburton will deliver revenue growth, margin expansion, and leading returns for shareholders. I look forward to speaking with you next quarter. Let's close out the call.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers stand by.