Halliburton Announces Second Quarter Earnings from Continuing Operations of $0.80 Per Diluted Share
Halliburton (NYSE:HAL)
Today : Monday 23 July 2012
Halliburton (NYSE:HAL) announced today that income from continuing operations for the second quarter of 2012 was $745 million, or $0.80 per diluted share. This compares to income from continuing operations for the first quarter of 2012 of $635 million, or $0.69 per diluted share. First quarter reported results included $300 million ($191 million, after-tax, or $0.20 per diluted share) for an estimated loss contingency related to the Macondo well incident.
Halliburton’s consolidated revenue in the second quarter of 2012 was $7.2 billion, compared to $6.9 billion in the first quarter of 2012. Consolidated operating income was $1.2 billion in the second quarter of 2012, compared to $1.0 billion in the first quarter of 2012. All international regions experienced double-digit percentage revenue and operating income growth from the first quarter of 2012. North America margins were negatively impacted, however, by rising costs and pricing pressure in production enhancement services.
“I am pleased with our second quarter results, which set a new revenue record for the total company and all three of our international regions,” commented Dave Lesar, chairman, president and chief executive officer.
“We continue to be successful in executing our strategy of market share growth while maintaining a focus on industry-leading returns. From a global perspective, we achieved record revenues in eight of our product service lines, with four of them – Cementing, Completion Tools, Multi-Chem, and Testing and Subsea – generating record operating income as well.
“Consolidated revenue for the second quarter was up over 5% sequentially. The international rig count was up 3% during the quarter, compared to a 15% increase for our international revenues. North America rig count decreased 17%, while our North America revenues were essentially flat compared to the first quarter. Key strategic market share gains in international operations, continued capacity additions, and strong utilization contributed to this outperformance.
“Due to the annual spring break-up, the Canada rig count dropped 70% sequentially, while the United States rig count decreased 1%. We continued to see activity shift from natural gas to oil basins during the quarter. Oil and liquids-directed activity accounted for over 70% of the rig count at the end of the second quarter, while natural gas-directed rigs finished the quarter at a 12-year low.
“North America operating income decreased 19% from the first quarter, impacted by escalating costs associated with guar gum, a blending additive used in our hydraulic fracturing processes. Operating income was also impacted by the annual Canadian spring break-up, pricing pressure in hydraulic fracturing operations, and economic costs associated with equipment relocations, partially offset by improved Gulf of Mexico activity. We expect the guar cost and equipment relocation issues to subside as we enter 2013.
“In Latin America, revenue and operating income were up 13% sequentially, with only a 1% increase in rig count. Results were positively impacted by activity growth and pricing improvements in Venezuela and Mexico, as well as increased development of managed projects across the region. For the remainder of the year, we expect our margins for consulting and software services in Latin America to expand.
“In the Eastern Hemisphere our market share growth strategy is playing out as expected, as evidenced by the record revenues and improved margins achieved this quarter. Relative to a sequential rig count gain of 5%, Eastern Hemisphere revenue was up 15%. Compared to the second quarter of 2011, the Eastern Hemisphere rig count was up 8%, while revenue was up 23%. We continue to make progress in markets that had been negatively impacting our results and are optimistic about activity levels expanding in the second half of 2012.
“Europe/Africa/CIS had a strong recovery from the seasonal weather impact in the first quarter. The Europe and Eurasia areas as a whole are generating margins higher than our current Eastern Hemisphere average. Libya continues to recover, while the investments and restructuring efforts made last year in Africa continue to pay off.
“In Middle East/Asia, we recovered well from the seasonal weather experienced by Australia in the previous quarter and sales in China rebounded sharply from seasonally low levels in the first quarter. Compared to the second quarter of last year, operating income across the region was up 59%, highlighted by a 72% improvement in our Asia Pacific countries.
“Going forward, we intend to maintain our market leading position in North America, strengthen our international margins, and grow our market share in deepwater and in underserved international markets. The results for this quarter clearly demonstrate that our ongoing strategy is working. Additionally, we believe we are well-positioned to capture additional market share in the expanding international unconventional basins by leveraging our technology and expertise developed in North America,” concluded Lesar.
2012 Second Quarter Results
Completion and Production
Completion and Production (C&P) revenue in the second quarter of 2012 was $4.5 billion, an increase of $170 million, or 4%, from the first quarter of 2012. Increased demand in oil and liquids-rich basins in the United States land market and strong Eastern Hemisphere growth more than offset the effects of the seasonal Canadian spring break-up.
C&P operating income in the second quarter of 2012 was $914 million, a decrease of $122 million, or 12%, from the first quarter of 2012. North America C&P operating income decreased $180 million, or 21%, from the first quarter of 2012, primarily due to increased costs associated with guar gum and pricing pressure in production enhancement services. Latin America C&P operating income was relatively flat compared to the first quarter of 2012, as increased activity in production enhancement services in Mexico was offset by higher costs in Mexico and Argentina. Europe/Africa/CIS C&P operating income increased $38 million, or 67%, from the first quarter of 2012 driven by increased activity and improved cost controls in Angola, improved completion tools results in Norway, and increased demand for cementing services in Russia. Middle East/Asia C&P operating income increased $21 million, or 40%, compared to the first quarter of 2012. This increase was primarily due to increased activity levels in Australia and higher production enhancement activity and completion tools sales in Qatar and Saudi Arabia.
Drilling and Evaluation
Drilling and Evaluation (D&E) revenue in the second quarter of 2012 was $2.8 billion, an increase of $196 million, or 8%, from the first quarter of 2012, driven by greater demand for fluids in the Gulf of Mexico and higher drilling activity levels internationally.
D&E operating income in the second quarter of 2012 was $393 million, an increase of $25 million, or 7%, from the first quarter of 2012. North America D&E operating income decreased $24 million, or 13%, from the first quarter of 2012 primarily due to the Canadian spring break-up and migration of activity from natural gas to oil and liquids-rich basins. Latin America D&E operating income increased $17 million, or 25%, from the first quarter of 2012, primarily due to improved activity and pricing in Venezuela and increased wireline and testing and subsea activity in Mexico. Europe/Africa/CIS D&E operating income increased $24 million, or 60%, from the first quarter of 2012 as a result of wireline direct sales in Poland, higher activity in all product service lines in Kazakhstan, and increased demand for drilling services in Russia and Norway. Middle East/Asia D&E operating income increased $8 million, or 11%, from the first quarter of 2012, as higher sales in China were partially offset by increased costs in Iraq.
Corporate and Other
During the second quarter of 2012, Halliburton invested an additional $29 million, pre-tax, in strategic projects aimed at strengthening Halliburton’s North America service delivery model and repositioning technology, supply chain, and manufacturing infrastructure to support projected international growth. Halliburton expects to continue funding this effort for the remainder of 2012.
Significant Recent Events and Achievements
Halliburton and Gazprom International announced they had signed a Strategic Cooperation Agreement for the development and implementation of new oil and natural gas technologies in global exploration and production projects. The agreement sets the framework for the ongoing exchange of information related to oil and natural gas technologies, for technical training to be provided to Gazprom International by Halliburton, and for the deployment of Halliburton technology on Gazprom International projects. The technologies will address areas including tight natural gas, deepwater, advanced software applications, and integrated workflows.
Halliburton was recognized by the 2012 Offshore Technology Conference's (OTC) Spotlight on New Technologies program for its EquiFlow® autonomous inflow control device (AICD). The EquiFlow® AICD addresses the problem of unwanted water or gas production and solves the inefficiency in current ICD designs. The OTC Committee chose the technology for the Spotlight award based on four criteria: innovation; proven full-scale application; broad interest and appeal for the industry; and significant benefit to the industry beyond existing technologies.
Halliburton reached a milestone in the realization of its Frac of the Future vision. In the second quarter, Halliburton rolled out the first production units of its new Q10™ pump to field operations where it joins our solar-powered SandCastle™ proppant storage units and our ROCC™ Remote Operation Command & Control Centers. The new Q10™ pump is the most versatile pump ever produced by Halliburton. It is designed to more efficiently meet the demands of horizontal shale, providing significantly enhanced performance and reliability while simultaneously reducing our footprint at the well site.
Halliburton has developed PermStimSM, a fluid to replace guar-based fracturing systems by providing a cleaner, more robust alternative that is designed to result in more cost-effective treatments and improved well performance. Conventional guar-based fluid systems have 10% or more insoluble residue that remains in the proppant pack and reduces the flow of hydrocarbons to the wellbore. The non-damaging characteristics of PermStimSM fluid is expected to help operators get better results from fracturing treatments. PermStimSM has been used successfully in over 40 wells in the Denver-Julesburg and Williston Basins at temperatures up to 300°F BHST.
Halliburton introduced the SperryDrill® XL/XLS and GeoForce® XL/XLS series motors to its fleet of positive displacement drilling motors. SperryDrill® and GeoForce® XL and XLS series motors offer novel downhole drilling motor technology for harsh drilling conditions and special applications such as air drilling, extended-reach drilling, and high-temperature drilling.
Halliburton announced an integrated suite of products and services to help operators develop reservoirs previously challenged by high equivalent circulating density (ECD) of the fluids used to drill and cement the well, which results from narrow margins between the pore pressure and the fracture gradient of the formation. Halliburton’s “Low ECD” solution helps increase operational efficiency while reducing formation damage and uses a range of technologies designed to minimize circulating and surge pressure. As part of this comprehensive solution, Halliburton has released the Low ECD Fluid Enhancement Package, VersaFlex® Low ECD System, and Commander™ 1000 Top-Drive Cementing Head.
Halliburton was awarded three Hart’s E&P Meritorious Engineering Achievement awards in 2012, as well as four Honorable Mentions. The Hart's Meritorious Award for Engineering Achievement honors the world's best new technologies and techniques for finding, drilling and producing oil and natural gas wells. The receipt of a meritorious engineering achievement award marks a company as a technology leader in the upstream oil and natural gas industry. Entries are judged by a panel of globally recognized industry experts on their innovation of concept or design; their ability to solve a real, practical oilfield problem; and their potential for improving profitability, safety, or efficiency. Awards were received for Halliburton’s CleanStream® service, Offshore Slop Unit, Tuned® Spacer V spacer fluid, RockStrong™ coring system, EquiFlow® autonomous inflow control device, Liner-Conveyed Gravel Pack System and Rigless E-Line Recompletion Solution.
Founded in 1919, Halliburton is one of the world’s largest providers of products and services to the energy industry. With over 70,000 employees in approximately 80 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field. Visit the company’s Web site at www.halliburton.com.
NOTE: The statements in this press release that are not historical statements, including statements regarding future financial performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company’s control, which could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: results of litigation, settlements, and investigations; actions by third parties, including governmental agencies; changes in the demand for or price of oil and/or natural gas can be significantly impacted by weakness in the worldwide economy; consequences of audits and investigations by domestic and foreign government agencies and legislative bodies and related publicity and potential adverse proceedings by such agencies; indemnification and insurance matters; protection of intellectual property rights and against cyber attacks; compliance with environmental laws; changes in government regulations and regulatory requirements, particularly those related to offshore oil and natural gas exploration, radioactive sources, explosives, chemicals, hydraulic fracturing services and climate-related initiatives; compliance with laws related to income taxes and assumptions regarding the generation of future taxable income; risks of international operations, including risks relating to unsettled political conditions, war, the effects of terrorism, and foreign exchange rates and controls, international trade and regulatory controls, and doing business with national oil companies; weather-related issues, including the effects of hurricanes and tropical storms; changes in capital spending by customers; delays or failures by customers to make payments owed to us; execution of long-term, fixed-price contracts; impairment of oil and natural gas properties; structural changes in the oil and natural gas industry; maintaining a highly skilled workforce; availability and cost of raw materials; and integration of acquired businesses and operations of joint ventures. Halliburton’s Form 10-K for the year ended December 31, 2011, Form 10-Q for the quarter ended March 31, 2012, recent Current Reports on Form 8-K, and other Securities and Exchange Commission filings discuss some of the important risk factors identified that may affect Halliburton’s business, results of operations, and financial condition. Halliburton undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
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