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.
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