Halliburton’s Perspective in Q1: KEY Takeaways

In 2025, Halliburton expects revenues from international operations to increase, particularly in unconventional, artificial lift, intervention, and directional drilling. During Q1, it mobilized Zeus equipment to the Middle East. Also, nearly 40% of its frac spreads under term contracts are operated under Zeus in North America. However, the recent tariff hike can take its toll on the company’s margin in Q2.

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International Business Outlook

We have already discussed Halliburton's (HAL) Q1 2025 financial performance in our recent article . In 2025, HAL expects growth to arise from unconventional, artificial lift, intervention, and directional drilling operations. It has recently mobilized Zeus equipment to the Middle East and won a new offshore work in Ghana. It acquired Optime Subsea, which transforms deep water interventions. In Norway, it delivered a closed-loop automated drilling system.

In Q3, HAL expects growth in Europe, Africa, and the Middle East. In Saudi Arabia, it expects unconventionals, intervention, and artificial lift activities to grow in 2025. Latin America, too, will provide a thrust as contract startups will start mobilizing in Q2. Overall, it expects international revenues in 2025 to grow in the “double digit.”

North America Outlook

Halliburton’s expectation in North America remains bearish due to a lower activity level. As a result, it expects utilization in committed frac spreads to decline. As North American completion activity dries up, it may retire a few frac spreads or may export them to international markets. Despite that, it expects to outperform its peers in North America because of improved efficiency and its focus on the electric platform. Nearly 40% of its frac spreads under term contracts are operated under Zeus.

Frac Outlook

In electric frac, HAL completed the first closed-loop autonomous fracturing operation in Q1. Under this, it can utilize real-time feedback from the reservoir in the Zeus platform. This technology, known as Zeus IQ, will provide operators with measurements and controls to improve productivity and production per lateral foot.

HAL also recognizes that the customers investing in electric frac like Zeus typically have a long-term commitment and expects the North American market to recover in the long term. Given that it has put its first Zeus frac spread to work in Q1, it shows that it expects growth to rebound in this region.

Segment Forecast And Tariff Effect

In Q2 2025, the management expects the C&P division revenue to increase by 1%-3% compared to Q4 2024, while operating margins can remain unchanged compared to Q1. The Drilling and Evaluation division expects revenue to decrease by ~2% and margins can decline by 125-175 basis points in Q2 following the roll off of software sales and higher mobilization expenses related to contract start-ups.

Regarding the margin contraction in the D&E division, HAL provided a breakup of the fall. It may lose nearly $10 million due to tariff hikes, $20 million in mobilization, and another $10 million due to an adverse sales mix issue related to the software business. Higher tariffs can also reduce the C&P division's profit. Overall, the negative impact of the policy change can amount to $0.02 to $0.03 per share drop in net income.

Key Q1 Metrics

Quarter-over-quarter, revenues in the company's Completion and Production operating segment decreased by 1.8% in Q1. The top line in the Drilling and Evaluation segment decreased more sharply, by 5.6%.

HAL's cash flow from operations weakened (22% down) in Q1 2025 compared to a year ago. As a result, its FCF decreased by ~52%. Debt-to-equity (0.72x) also deteriorated from FY2024, due primarily to lower shareholders' equity. In FY2025, it expects capex to remain unchanged at 6% of revenue. During Q3, it repurchased shares worth $250 million to improve shareholder returns.

Relative Valuation

Halliburton is currently trading at an EV/EBITDA multiple of 5.3x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is higher. The current multiple is lower than its five-year average EV/EBITDA multiple of 10.9x.

HAL's forward EV/EBITDA multiple expansion versus the adjusted current EV/EBITDA contrasts a decline in the multiple for its peers because the company's EBITDA is expected to decline versus a rise in EBITDA for its peers in the next four quarters. This typically results in a much lower EV/EBITDA multiple than peers. The stock's EV/EBITDA multiple is lower than its peers' (SLB, BKR, and FTI) average. So, the stock is reasonably valued versus its peers.

Final Commentary

HAL expects the tariff rise to adversely impact its margin in Q2. This, along with lower activity level can result in lower frac spread utilization and even a lower frac spread count in North America in the short term. Despite that, operators’ preference for higher efficiency can lead to long-term commitment to the company’s Zeus platform (electric frac spreads) in the long term.

HAL’s international business health remains robust. Europe, Africa, and the Middle East will likely lead the growth in 2025. It has recently mobilized Zeus equipment to the Middle East. The company continues to repurchase shares, although its cash flows decreased in Q1. The stock is reasonably valued versus its peers at this level.

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