Halliburton's 3Q Profits Take a Hit, But Better Than Expected

Halliburton has announced net income for the third quarter of 2009 was $281 million, or $0.31 per diluted share, excluding employee separation costs of $19 million, after tax, or $0.02 per diluted share. Consolidated revenue in the third quarter of 2009 was $3.6 billion, compared to $3.5 billion in the second quarter of 2009. Consolidated operating income was $474 million in the third quarter of 2009 compared to $476 million in the second quarter of 2009. Excluding the impact of employee separation costs, third quarter consolidated operating income was $502 million, an improvement of 2%. Employee separation costs negatively impacted operating income by $28 million in the third quarter and by $17 million during the second quarter of 2009.

Reported net income for the third quarter of 2009 was $262 million, or $0.29 per diluted share. This compares to net income for the third quarter of 2008 of $672 million, or $0.74 per diluted share. The third quarter of 2009 results were negatively impacted by continued pricing pressures in North America. The third quarter of 2008 results included a WellDynamics acquisition-related charge of $15 million, after tax and noncontrolling interest. In addition, hurricanes in the Gulf of Mexico negatively impacted third quarter of 2008 net income by approximately $33 million, after tax.

"While I am pleased with our results, overall market dynamics remained difficult in North America in the third quarter. However, Halliburton continued to benefit from its balanced global portfolio and broad offering of services. Total revenue increased 3% from the second quarter, representing our first sequential revenue increase since the fourth quarter of 2008," said Dave Lesar, chairman, president and chief executive officer.

"International revenue increased 3% from the second quarter despite a modest decline in international activity. Operating margins outside North America increased to 22%, excluding the employee separation costs. Oil and gas operators have, in general, been reluctant to increase spending until market fundamentals improve and are supported by sustainable increases in hydrocarbon demand. Although I am more confident in our view of the international markets than I was last quarter, project deferrals together with pricing pressure, driven by our customers’ desire to reduce input costs, cause us to continue to expect a softer near-term margin outlook for international markets.

"North America revenue improved 2% from the second quarter. Canadian activity saw seasonal recovery in the third quarter, while the US rig count experienced a 4% gain driven by an increase in oil-directed activity. Unconventional resources continue to play an increasing role in US land development. Consistent with our strategy, we have successfully expanded our position in key basins, where our technology and expertise continued to differentiate our services.

"We believe that North America pricing has stabilized in most basins; however, competition remains fierce in North America particularly in areas that exhibited growing activity such as the Haynesville and Marcellus shale plays. We are seeing signs that margins are bottoming in the third quarter, but it is likely that fourth quarter margins will continue to be under pressure due to typical weather issues, winter stipulations in the Rockies, and customers who are likely to continue drilling but deferring completions until they see a more favorable pricing outlook.

"Given the current challenging environment, I believe we are in a strong position at this point. Our strong balance sheet and broad service portfolio give us the flexibility to continue building a robust global platform of industry-leading technologies and services that will increase our exposure to the highest value market opportunities. We believe these investments will lead to a solid long-term position for the company and accelerate our growth as the global economy recovers," concluded Lesar.

2009 Third Quarter Results

Completion and Production

Completion and Production (C&P) revenue in the third quarter of 2009 increased $69 million from the second quarter of 2009 due to higher demand across all product service lines. Significant revenue growth was seen from increased vessel activity in the North Sea and Angola as well as higher completion tools activity in Norway, Saudi Arabia, China, and India.

Operating income in the third quarter of 2009 was $240 million compared to $243 million in the second quarter of 2009. Excluding employee separation costs in both quarters, operating income was flat, as strong results in international regions were offset by the continued weakness in North America. North America C&P operating income decreased primarily due to pricing declines for production enhancement services in the United States. Latin America C&P operating income declined as a result of lower activity across all product lines in Venezuela and Argentina. In addition, higher second quarter deliveries of completion tools in Mexico and Brazil also affected this segment's results in the third quarter, which is typical of this product service line since it often experiences irregular delivery patterns from quarter to quarter.

Europe/Africa/CIS C&P operating income increased due to higher demand for production enhancement services in the North Sea and Angola and intelligent well completion products and services in Norway. Middle East/Asia C&P operating income increased due to higher demand for completion tools.

Drilling and Evaluation

Drilling and Evaluation (D&E) revenue in the third quarter of 2009 increased $25 million from the second quarter of 2009 due to higher demand for drilling fluids and software and asset solutions products and services. The division experienced strong sequential revenue increases in Russia, Caspian, Brazil, and US Land.

Operating income in the third quarter of 2009 was $283 million compared to $284 million in the second quarter of 2009. Excluding employee separation costs in both quarters, operating income for the third quarter was up $7 million. North America D&E operating income showed moderate growth, as increased activity in US land and Canada was partially offset by weakness in the Gulf of Mexico. Latin America D&E operating income remained flat as increased drilling activity in Mexico was offset by lower overall activity in Colombia and Ecuador.

Europe/Africa/CIS D&E operating income increased significantly as higher activity in Russia and the Caspian offset sequential declines in Africa. Middle East/Asia D&E operating income decreased due to lower demand for drilling services throughout the region and lower direct sales in Asia.

Significant Recent Events and Achievements

  • Halliburton has been awarded a $190 million contract by Petrobras to provide drilling fluid, completion fluid and drilling waste management services in the offshore markets of Brazil. The award includes service delivery in the shelf, deepwater and pre-salt areas of the Campos, Santos, and Espírito Santo basins. Halliburton began performing services related to this five-year agreement in the third quarter of 2009.
  • Halliburton announced the renewal of its British Petroleum global software access and services agreement. The three-year contract enables continued access to a broad suite of Landmark technology and petro-technical consulting services for the development, deployment, and ongoing global support of exploration and production technology and workflows. Software access covered in the agreement includes applications for seismic processing, geophysical and geological interpretation, reservoir simulation, and drilling engineering.
  • Halliburton has been awarded a $140 million contract extension by Total to deliver fluid services in support of its deepwater drilling and completion activities offshore in Angola. The contract calls for the provision of services on an average of three deepwater rigs for up to three years.
  • Halliburton has been awarded a contract by Shell to deliver fluid services on one deepwater rig and one tension leg platform in the Gulf of Mexico. Work began in the third quarter of 2009 and includes the delivery of clay-free, high-performance fluid systems that are engineered to address deepwater challenges through improved control of downhole pressures and cold-temperature rheology.
  • Halliburton has been awarded a two-year contract, with multiple extension options, to provide drilling fluids and associated services to Talisman Energy Norge AS. The $229 million contract, including options, began in the third quarter of 2009 and encompasses all Talisman-operated fields on the Norwegian Continental Shelf.
  • Halliburton announced the recent deployment of its new Hostile Sequential Formation Tester II (HSFT-II™) tool. This latest formation evaluation tool allows operators to evaluate formations at increased pressures and temperatures, up to 30,000 pounds per square inch (psi) and 450°F, respectively, and in boreholes as small as four inches. No other commercially available formation testing tool is rated for such operating conditions. In June 2009, Halliburton evaluated Shell's Rashda A1 well in Libya with its industry-leading, high-pressure/high-temperature wireline logging suite and the newly introduced HSFT-II tool to acquire downhole formation pressures, at temperatures reaching 420°F, a first for Shell, and pressures of about 20,000 psi.
  • Halliburton introduced new solutions designed to help operators address the challenges they face with unconventional gas reservoirs due to significant variances across plays, increasing reservoir complexity, and rapid production decline. These included Halliburton's Stimulation for the Digital Asset™ workflow, which provides the capability to view real-time stimulation data in engineering, geological, and geophysical interpretation environments. This workflow brings together leading solutions from Halliburton's fracturing, microseismic mapping, and software products and services.
  • Halliburton has developed a new extreme-temperature synthetic fracturing fluid comprising the first system that performs at temperatures above 450°F while providing the proppant transport capabilities critical for the successful fracturing of deeper, hotter formations. This fluid system does not require a formation cool-down process, as did previous systems, which often contributes to poor initial well performance. This new fluid system helps operators turn high-temperature discoveries into producing assets.

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