The recovery hasn’t arrived yet, but when it does, North America will be leading the charge, Halliburton Co. CEO Dave Lesar said Tuesday.

Lesar, who shared the Houston oilfield services giant’s first quarter results with investors, spent part of the hour-long conference call discussing the failed merger with Baker Hughes Inc., which was officially canceled on Monday (see Shale Daily,May 2). Halliburton last week issued its quarterly operations report (see Shale Daily,April 25).

Halliburton management was disappointed in not completing the merger, which Lesar blamed on U.S. and European regulators, which he said had “misunderstood” how many assets the partners were willing to divest. Regardless, the company doesn’t plan to dwell, said the CEO. And the mood among customers regarding the business environment overall appears to be getting better.

“I think that clearly there is marginally more optimism about things. I don’t think we’ve seen that optimism translated into any set plans to actively increase the rigs in the back half of the year, but certainly those discussions are taking place…We thought the rig count would bottom in the second quarter and I think we still believe that’s the fact.”

With oil prices a bit higher, “people are more optimistic, and we do think that potentially we will see an upswing in the rig count in the back half of the year.”

The market up to now “has generated a sense of urgency in many of our customers, and we are having better conversations with them around improving their cost per barrel economics,” Lesar said. “Ultimately, we believe that when this market recovers, it will be North America that responds the fastest, offering the greatest upside, and that Halliburton will be positioned to outperform.

For the exploration and production customers, “there’s going to be an element of balance sheet repair that has to go forward, but clearly, that is going to be offset by what should be some pretty significant production declines that these guys are going to see,” Lesar said. “Given the nature of these companies, that they are independents, they are very confident in their own skillset, they are confident in the acreage they have, and I think that when they believe that the time is right to start drilling, they will do it.”

Like Baker, the company had been carrying more costs in anticipation of the tie-up. With the merger out the window, structural costs could decline by one-quarter this year, President Jeff Miller said.

“In North America, we’ve been carrying around 300 basis points of added costs, which we started to dismantle in the first quarter,” he said. “Now that process is going to continue through the end of the year, and we expect to eliminate 100 basis points per quarter.

“That’s just in North America, so we are also looking at doing the same in the Eastern Hemisphere, in Latin America, as well as in all of our product service lines and corporate structures. We are scrutinizing every cost from manufacturing, to supply logistics, to field operations and we are doing this on a global basis…

“So overall, we will be reducing our structural costs by 25%. Maybe said another way, we will lower an annual run rate on costs by around $1 billion by the end of the year,” more as the year progresses.

Market conditions continued to negatively impact Halliburton’s business in 1Q2016.

“The rig count declined to historic lows during the quarter, in the face of continued depressed commodity prices, which created further widespread pricing pressure and activity reductions for the company’s products and services on a global basis,” Lesar said.

Net losses in 1Q2016 totaled $2.41 billion (minus $2.81/share), compared with a year-ago loss of $643 million (minus $75 cents). Halliburton lost $28 million (minus 3 cents) in 4Q2015. Impairments in 1Q2016 totaled $2.77 billion versus $1.21 billion in 1Q2015 and $282 million in 4Q2015. Baker Hughes acquisition-related costs totaled $538 million in 1Q2016.

Total revenue was $4.2 billion, versus $5.1 billion in the fourth quarter. North American revenue plunged to $1.79 billion from $3.54 billion a year ago and from $2.15 billion in 4Q2015. Operating losses in North America totaled $39 million, versus year-ago income of $279 million and sequential income of $41 million.

Even though the merger was canceled, “our strategy has not changed,” Lesar said. “We still expect to outperform the rig count, we plan to scale up our product service line capability by addressing one product line building block at a time to internal growth, investment and selective acquisitions.”