哈里伯顿 (HAL) 2026年第三季度业绩电话会议：2027年利润率目标达到15%lg...

核心要点

• 哈里伯顿公布2026财年第三季度营收为57亿美元，调整后营业利润为7.31亿美元，调整后稀释每股收益为0.60美元。调整后营业利润率为12.8%。
• 国际业务营收同比增长9%，环比增长3%，达到35亿美元。北美业务营收同比下降9%，环比下降5%，至22亿美元，主要反映水力压裂活动走弱。
• 管理层的2027财年初步展望预计，营收将实现中单位数增长，营业利润率将扩大约200个基点至15%左右。
• 2027财年框架假设北美业务同比持平，中东地区的活动与2026财年下半年相比保持持平。管理层强调，其目标的实现并不依赖于北美水力压裂业务的复苏。
• 哈里伯顿预计2026财年第四季度营收将维持在57亿美元附近，同时营业利润率将改善约70个基点。调整后每股收益预计为0.62美元至0.64美元。
• 公司在第三季度回购了约2.5亿美元的普通股，并预计2026财年全年自由现金流约为16亿美元。

关键财务数据

业务与运营表现

国际业务是主要的增长驱动力。在陆上美国业务、中东和拉丁美洲的带动下，钻井与评估部门的营收和利润率均优于预期。更有利的营收结构和更高的边际增量利润率对该业绩构成了支撑。

在中东地区，尽管面临通胀压力和地缘政治干扰，营收仍实现环比增长。在整季延期的完井活动以及在沙特阿拉伯扩大参与综合及单项服务的支持下，哈里伯顿预计第四季度该地区的营收将实现环比和同比双增长。

在中东以外地区，管理层预计2026财年营收将实现约12%的同比增长。近期赢得的项目包括英国石油公司（BP）在巴西的Boomerang评价项目，以及埃尼公司（ENI）在塞浦路斯的Coronis超深水天然气开发项目。哈里伯顿表示，今年迄今已取得近40亿美元的海上业务订单。

公司在生产服务、钻井、国际非常规业务以及人工提举方面的增长举措仍在按计划推进，目标是到2028年增加30亿美元的年营收。计划中的里程碑包括北海压裂船的投入使用以及在阿根廷部署首个ZEUS车队。

人工提举业务通过在阿根廷签署的多年电潜泵（ESP）租赁合同、在阿联酋和刚果海上业务的首次安装，以及哈里伯顿在巴西获得的首个海上电潜泵订单而得到拓展。目前该业务已覆盖21个国家。

哈里伯顿还恢复了在委内瑞拉的业务活动。管理层表示，设施已开放，设备已调配，且多条产品线在第三季度产生了营收。公司计划向一家主要客户交付12台电潜泵，不过管理层警告称，将委内瑞拉业务重建至相当规模仍需时日。

受水力压裂市场弱于预期的影响，北美业务面临压力。哈里伯顿将数支作业车队调往出价更高的客户，这导致第三季度的停工时间多于预期。公司重申，其管理压裂业务是以追求回报而非市场份额为导向。

北美其他业务的表现则更为强劲。斯佩里钻井服务（Sperry Drilling Services）、钻头和钻井液业务在陆上美国市场的营收同比增长了23%。管理层将这一增长归因于更长的水平井段、更高的井眼复杂程度，以及对iCruise旋转定向系统、高性能钻井液和HyperSteer钻头的更多采用。

管理层业绩指导

哈里伯顿对2027财年的初步展望包括中单位数的营收增长以及约15%的营业利润率（相当于扩大约200个基点）。管理层预计2026财年营收将落在约225亿美元，这意味着在2027财年框架下增加超过10亿美元的营收。

预计利润率提升的约一半将来自于运营和结构性成本削减，以及SAP S/4实施支出的逐渐减少。管理层估计，成本削减将带来1亿至1.5亿美元的节省，与SAP相关的支出减少将节省1.2亿至1.5亿美元。其余部分则假设新增营收的边际增量利润率约为20%至30%。

该展望假设北美业务按全年计算保持持平，且中东地区的活动与2026财年下半年相比维持持平。其他国际市场的稳健增长预计将构成主要的营收增量。管理层认为，北美水力压裂业务的任何复苏都属于潜在的上行空间，而非实现该框架的必备条件。

对于2026财年第四季度，哈里伯顿预计：

• 总营收约为57亿美元，环比大致持平。
• 营业利润率提升约70个基点。
• 调整后每股收益约为0.62美元至0.64美元。
• 完井与生产部门营收增长3%至5%，利润率提升75至125个基点。
• 钻井与评估部门营收下降3%至5%，利润率持平或提升至多50个基点。
• 经营活动现金流约为10亿美元，全年自由现金流约为16亿美元。

风险与关注事项

地缘政治不确定性仍是突出的国际风险。管理层表示，中东地区的物流和物料交付成本有所增加，同时预计通胀压力将持续存在。这些成本已包含在2027财年框架中。

第三季度北美水力压裂活动的复苏力度不及预期。车队调配、客户重新定价以及季节性效应可能会继续影响利用率，尽管管理层表示产能紧张且定价讨论具有建设性。

由于北美陆上和阿根廷的水力压裂活动偏弱，以及沙特阿拉伯的合同启动较慢，完井与生产部门的业绩低于管理层预期。

营运资金也对第三季度的现金产生造成了影响。回款低于预期，而由于SAP S/4的实施、项目启动以及对中东物流的担忧，库存有所增加。

分析师问答环节要点

• 2027财年利润率桥接分析：管理层将约2.5亿至3亿美元的预期改善归因于成本削减和SAP支出的减少。其余部分预计将来自营收增长带来的边际增量利润。
• 北美水力压裂业务：哈里伯顿的2027财年框架假设业务活动持平，但管理层表示，最近的车队合同延长、价格上涨以及客户讨论均表明有可能出现复苏。即使这意味着失去市场份额，公司也将优先考虑回报。
• 拉丁美洲：在阿根廷、委内瑞拉、苏里南以及墨西哥下半年潜在改善的支持下，管理层预计该地区将引领增长。墨西哥第三季度的业绩改善主要由软件销售推动。
• 中东地区：公司表示业务活动保持韧性。其已签约项目提供了良好的可见性，而增长机遇包括Jafurah项目、人工提举、海上业务和伊拉克项目。伊拉克主要的IFMS项目预计将于2027财年上半年启动，并在五至八年内逐渐放量。
• 国际市场定价：哈里伯顿表示，全球产能依然紧张，公司正在选择性决定在何处部署设备。管理层预计进一步紧缺将带来额外的定价机遇。
• 自由现金流：在预计2026财年实现约16亿美元自由现金流之后，管理层预计2027财年利润将改善，自由现金流利润率也将有所提升。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Halliburton Company's Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

At this time, I would like to turn the conference over to Mr. David Coleman, Senior Director, Investment Relations. Sir, please begin.

David Coleman

Hello, and thank you for joining the Halliburton Third Quarter 2026 Conference Call. We will make the recording of today's webcast available for 7 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.

Jeffrey Miller

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 and early view of the year ahead and Halliburton's business today. Let's start with the market. We are another 3 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. But what's 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 oilfield 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.

Shannon Slocum

Thanks, Jeff. Let me start with International where 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 of 150 basis points sequentially.

Let's get into the details. I'll 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 to slight 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'll highlight two: A full quarter deferral 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 Boomerang appraisal program for BP in Brazil and the Coronis 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 frac vessel to begin operations at year-end. And 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 multiyear ESP rental contract with a major operator, our largest award of the quarter, and with another customer, we delivered our first unconventional installation. This quarter, we also made our first installations in UAE 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. And 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 results reflect this. We run North America frac 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 3, and we see strong demand in all sales channels. In drilling fluids, [ there were also ] wins in long laterals, where wellbore stability can decide how fast the well gets drilled. We see growing adoption of our high-performance fluid systems. I expect to see this growth continue as well as 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 stability and speed. Our 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. And over the last several years, we have made deliberate choices to reduce our exposure to commoditize 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?

Eric Carre

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 hydraulic fracturing in North America 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 expenditures 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 were 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 S4. On this last point, I am pleased to announce that we are now live on S4, 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 to $0.64.

Let me provide some color on the guidance. In our C&P division, we expect Q4 revenues to increase 3% to 5% and operating margins to improve 75 to 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% to 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.

Jeffrey Miller

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.

Operator

[Operator Instructions]

Our first question or comment comes from the line of David Anderson from Barclays.

分析师问答

John Anderson

So 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? You're having -- it's increasing this quarter and in fourth quarter, which seems to be kind of going against trend. So how does that, sort of, play out in your mind over the next couple of quarters? And 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?

Eric Carre

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. So again, important to understand that the view on 2027 is an early view. It is based on 2 major assumption. One, which is our business in North America is flat and our business in the Middle East is flat to H2 2026. So if we walk through the numbers from a very, very high level perspective, so we should finish 2026 at about $22.5 billion. The growth we indicated for '27 means about $1 billion and change additional revenue, 200 basis points in margin means about $500 million to $600 million in operating profit. So 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. So what remains is basically incremental margins on the additional revenue about 20% to 30% range. So we think that's a very reasonable assumption. So that's, at this stage, how we get to the 200 basis point improvement in margins.

David Coleman

Yes, Dave, 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, H2 -- 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, unconventionals, the reentry work that we've won, integrated offshore work, our Iraq. We've seen Iraq starting getting busier, and we won some work there, as you know, with IFMS and also the expansion of artificial lift throughout the region, both Saudi, Kuwait, Oman and Iraq. And all of that work, we see as accretive to our business. So 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. So we see that staying busy throughout next year. And as it relates to just unconventional as far as next year, we're really excited in the direction we're going.

We're now operating in 6 -- over 6 countries around the world plus actually Argentina, Algeria, UAE, Kuwait, Australia and Saudi and adding a few more. But 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.

John Anderson

I appreciate the color, both Shannon and Eric. A follow-up here sort of related to that would be on Latin America. It looks particularly interesting for '27. 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 has being talked about quite a bit. Could you, sort of, address some of the upside that is potentially there for Latin America, not just in '27 but beyond?

Jeffrey Miller

Yes, Dave. I'd 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 the 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 will stay fairly flat, but opportunities in H2, but I don't want to forget about Suriname in this conversation. We have won some significant work between Total Energies and Petronas in an integrated way. But I think if I look at Latin America, a lot of the work they're winning is really centered around our value proposition is how we engage with our customers and also their confidence in our ability to execute.

Operator

Our next question or comment comes from the line of Arun Jayaram from JPMorgan.

Arun Jayaram

Yes. Jeff, fairly unusual for how 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. So I guess my first question is what gave you and the team confidence to provide this revenue and margin guidance kind of 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-plus basis points of margin expansion.

Jeffrey Miller

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, I'm 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. And 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. We 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 into execution, that's happening. And I suppose, finally, the energy security is a real thing. And I know we're heading into an up cycle. And so that all gives me a lot of confidence around 2027. And as I said, I wanted to make sure I shared that with you sooner rather than later.

Arun Jayaram

Great. And just 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 public. Jeff and Shannon, can you talk a little bit about the disconnect? And when do you see this translating into incremental demand for frac and understanding that you've outlined some pretty conservative expectations of, kind of, call it a muddle along scenario today?

Jeffrey Miller

Yes. Shannon here. Yes, we see roughly 40 rigs being added in North America. So we have seen a an uptick, as I've mentioned in the prepared remarks around [indiscernible] bits and mud in the 23% growth we've seen just in Q3 alone. And we have seen profits adding and increasing their activity on the unconventional frac side of things. And our customers right now are in the middle of their budget cycle, but we are seeing some really good anecdotes that are -- that's playing out right here in front of us.

For example, we just had a big customer go in Tinder and only 1 service company showed up. We had another customer give us -- called us back and extended our e-fleet with price and then added another fleet on top of that. And we had several increases of prices throughout the quarter. So 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.

And so when we think about 2027, again, early days as far as looking at '27, but we see there's a real opportunity for growth in frac in North America next year.

Operator

Our next question comment comes from the line of Steve Richardson from Evercore.

Stephen Richardson

I was wondering if could just follow up on that last question a little bit, Shannon, if we could, on North American frac. Like do we need to see your big customers pick up activity to be a little bit more pointed, or are you seeing enough momentum in the market with broader activity that, that pricing comes through? And can you talk about how anomalous was 3Q from these moves and repricing that was going on?

Shannon Slocum

Yes. 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's first. We are seeing Q4, we'll have some level of seasonality, but we're seeing that tight as well as far as white space. I believe the bigger customers, the bigger operators, we've actually hear over the last week seeing indications of some of them going and looking at their frac schedule next year and actually have gotten phone calls. So all it takes is really 1 or 2 of these guys to put together a sizable program, and that changes things for Halliburton, and will benefit in a big way.

Stephen Richardson

Got it. And then perhaps another follow-up on the on the Middle East. I appreciate you're guiding flat activity with the second half of this year of what we've observed. Can you talk a little bit about the incremental costs 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?

Jeffrey Miller

Yes, 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's x2, really, that's 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 mentioned.

Operator

Our next question or comment comes from the line of Saurabh Pant from Bank of America.

Saurabh Pant

Eric, I think I heard on a 2027 margin improvement, the 200 basis points, I think you were calling out half of that is from cost improvement, the SAP roll-off. Maybe can you dig into that a little bit for us how much of that is SAP roll-off versus cost cutting? And then just in general, when we think about 2027 margin, I think, there are several crosscurrents. These cost savings initiatives, but there are also some pricing headwinds. We're 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.

Eric Carre

Yes. So if I -- if we start with the cost reduction, which I said was about half of the improvement in margin in '27. 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 this 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've 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. But overall, the savings are estimated to be anywhere in between $120 million and $150 million. So give or take, will be around $250 million, $300 million coming from cost savings.

And the rest of it is as I mentioned earlier, very reasonable assumptions on incremental margins from our core business. So yes, there are inflationary pressures. Some of them are already built in our Q3 numbers and our Q4 numbers. So we don't necessarily expect to have a lot more inflation from there. But offsetting that also, we are not assuming a meaningful pricing increase, and we are seeing pricing firm up. So all in, we believe that our view of 2027 is a very balanced view with what we know today.

Saurabh Pant

No, that's very helpful, Eric. It does seem very balanced. I agree with that. And then 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?

Shannon Slocum

Yes. Saurabh, Shannon here, yes. As I said, we are open for business. Team is in place, facilities are open and equipment has moved and we're getting multiple inbounds and you've probably read all the reports that I have a lot of major operators, ENI, Total, Chevron, Repsol all looking at -- have either entered or will enter. The work that we started with has been primarily interventions as we expected. But just in the quarter here, we'll have 12 ESPs being delivered.

And as far as size, before we left Venezuela, it was greater than a $0.5 billion business. We see that tracking to be in a sizable country for us in the future. That won't happen overnight, but we do like our start to the year, and it's trending in that direction.

Saurabh Pant

Okay. Okay. No, that makes sense. And the fact that your portfolio is fuller has a lot more production in it, right? I think that should be helping as well. But that's very helpful, Shannon, and I'll turn it back.

Operator

Our next question or comment comes from the line of James West from Melius Research.

James West

Lots of good color already on the call. I wanted to dig in on 2 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?

Jeffrey Miller

Yes, 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. But if things were to resolve immediately, somehow there to dream would be my comment. I mean I think we 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. But 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 [indiscernible] up pretty quickly.

James West

Okay. Okay. And then maybe on North America, the U.S. frac, I guess, more and more to the point, you've moved equipment out because you didn't like the returns on the pricing. It sounds like from Jeff, your comments and comments and Shannon's comments that you're starting to see some movement on price. Could you maybe characterize, is this wide spread yet? Is it kind of one-off? Like where are we? Are we in the early days of that pricing cycle? Or are we getting to that price like kind of where -- I mean you guys dominate the market. So where do you think we are in that cycle?

Shannon Slocum

Yes. What we have seen really starting in late Q2 is a steady progression of conversations on starting with the privates on more activity and 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. The sense that we see -- what we see right now is more foundational kind of contracts being looked at and believing that commodity pricing is sticky and that is driving another level, and I mentioned those anecdotes that we've been seeing, and those are real, and we've seen them kind of a steady dumpy of more of those, and that right there alone has really created some tightness.

And like I said, we're the largest in North America in -- we're assuming that, that's flat for 2027, but we're really excited about the conversations we're having.

Jeffrey Miller

Yes. Let me just clarify or just add to that a little bit, just to say that as we described '27, that's an assumption that we have made. That is not our view for North America. We're 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. And so we run it for absolute returns, and we'll 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.

Operator

Our next question or comment comes from the line of Derek Podhaizer from Piper Sandler.

Derek Podhaizer

I just wanted to revisit the international growth engines you mentioned in the prepared remarks. Last quarter, you said you were ahead of schedule. Early you talked about $2.5 billion to $3 billion by 2028. Just wanted to hear about your confidence as you look over the next couple of years and now you're 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's driving this expected growth. Just trying to think about these growth engines as we move into 2027.

Shannon Slocum

Derek, yes, 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 2 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 unconventional, as I mentioned, a dozen plus countries around the world. We've just within the last 2 months, added 2 spreads, 1 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 stem 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 2 countries just in the last year. So all of those things are good baselines to the growth and the target I mentioned in the multiyear, 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.

Derek Podhaizer

Got it. Great. 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 a rig suspensions, both onshore and offshore conventional, unconvention, 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?

Jeffrey Miller

Yes. Derek, the recent over the last couple of weeks, yes, it's been fluid. There has been some disruptions. But 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 is 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.

Operator

Our next question comment comes from the line of Josh Silverstein from UBS.

Joshua Silverstein

Last quarter, 1 of the big awards discussed was in Iraq over there, and you guys kind of labeled it as transformational for you guys. Can you discuss a little bit more details on kind of the timing of the ramp and just talk a little bit about the margin profile for Iraq relative to maybe rest of the Middle East.

Jeffrey Miller

Yes. That project, IFMS project, that is a multiyear project. It's a bit of a wind up 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 we'll start with more subsurface, landmark studies, those sort of things. This is a full field development. So it's -- 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's a 5- to 8-year project. So it will build over time. And as far as Iraq, it has been a very challenged market for us. And we see that win and also some activity that's coming that is going to be impactful for us structurally and help improve that market. The wins you've seen and the work we're going to be doing is not only good for Iraq, but it's good for Halliburton. So just a little bit of a wind up on the IFMS work, but excited about it.

Joshua Silverstein

Got it. And then maybe just on the offshore front. You've highlighted logic and some post 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?

Shannon Slocum

Yes. We really like our position offshore just over the -- just year-to-date, we've won about close to $4 billion of work, and we believe all of that is accretive. The acquisition that we made [indiscernible] has been additive to that automation that you mentioned. And you look at the offshore wins we've had, I mentioned the Suriname work with Total Energy's and Block 52 with Petronas, the East Med work. We're going to see robust activity in Norway with $10 billion of investments going in exploration and development, and that's a big market for us. So 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.

Operator

[Operator Instructions]

Our next question or comment is Mr. Scott Gruber from Citigroup.

Scott Gruber

So as I listened to the call here, a lot of bullish data points across the international markets really from Venezuela, Argentina deepwater 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? Is it -- if we just see the Middle East activity normalize would that be 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 this will happen?

Jeffrey Miller

I would say pricing has continued 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. And our view is this is nobody's really overbuilt in this market, so it's tight. And what that tightness is really has us in a place where we're making deliberate choices of where we go. And we had us -- just here in the last month, we had Sperry tools that were 3 different customers need them, we had to make a choice on where to go. So I think general macro outlook for us, we expect more tightening. With tightening, we think that creates an opportunity for more price. So yes, we see that as being accretive.

Scott Gruber

Got it. That sounds good. And just turning to 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 your early read on potential free cash conversion next year as margins improve and your cost base comes down.

Eric Carre

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 S4 related to the buildup of inventory 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 operations will be about $1 billion. If you take out CapEx net of sales of 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.

Operator

Our next question or comment comes from the line of Keith MacKey from RBC Capital Markets.

Keith MacKey

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?

Jeffrey Miller

Yes, 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 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.

Keith MacKey

Got it. Appreciate that. And just secondly, on the 2027 outlook. I appreciate the comments you've given so far. Just curious if you can 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?

Jeffrey Miller

Look, politics change all the time, I'm quite confident in our business under any political outcome. So that's not factored into our outlook. I think that macroeconomics and the requirement for energy has never been more acute than it is right now. And 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.

Operator

Our next question comment comes from the line of Sebastian Erskine from Rothschild.

Sebastian Erskine

I appreciate all the color on the call. Just in terms of the guidance you're trying to back out. So obviously, roughly at North America, sort of, implies that international growth of about, call it, 7% to 10% year-over-year. I mean maybe could you give a view of how much of that you already have a view on in terms of, kind of, the contracted work that you've kind of secured over through this year versus how much would be new wins and some of the sensitivity around the Middle East. Just trying to get a sense of that building blocks around, call it, 7% to 10% growth year-over-year in '27, assuming based on that assumption.

Shannon Slocum

Yes. I would say I heard North America and Middle East and there, I believe, the Middle East business is contracted. We have a real good line of visibility to that. In North America, I'd say, hey, everything -- our frac spreads are all working and busy. And again, we're not making any -- we believe that will be modeling right now is just flat for us in 2027. But yes, really North America, we think, is going to be higher than what we've talked about.

Sebastian Erskine

Super. I appreciate it. And then just very quickly, kind of just on the guide, just a clarification, I appreciate, Eric, you gave that number in terms of the '27. But in terms of the North America base, obviously, you've got this sort of unseasonal kind of the step-up in the fourth quarter. So just in terms of is that based off the 2026 average or the 4Q exit rate in terms of flat North America.

Eric Carre

Is your question around '27 or is it around Q4, Seb?

Sebastian Erskine

Yes. Just in terms of the North American -- the flat North America into 2027, is that based off the average of the 2026 or the exit rate for 4Q.

Eric Carre

Total -- total year to total year.

Operator

Thank you. I'm 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.

Jeffrey Miller

Yes. Thank you, Howard. And 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.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

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