Net loss for the quarter was $663 million, or $1.51 per diluted share, and included a net loss from discontinued operations for the proposed asbestos and silica settlement of $609 million, or $1.39 per diluted share. The net loss from discontinued operations resulted primarily from the second quarter reduction of the amount recorded as asbestos insurance receivables due to the pending settlement agreements with domestic insurance carriers.
Revenues were $5.0 billion in the second quarter 2004, up 38% from the second quarter 2003. This increase was largely attributable to additional activity on government services projects in the Middle East in the Engineering and Construction Group (known as KBR).
The consolidated pretax operating loss was $19 million in the second quarter 2004 compared to $71 million operating income in the second quarter 2003. This decrease was primarily attributed to a decline in KBR operating results as a result of a $310 million pretax loss on the Barracuda-Caratinga project, offset by increased government services work. KBR second quarter 2003 operating income included a $173 million pretax loss on the Barracuda- Caratinga project.
The Energy Services Group (ESG) had improved operating income in each of the four segments. Revenues increased 7% in the second quarter 2004 compared to the prior year period, and operating income for ESG was up 15% in the second quarter 2004. ESG second quarter 2003 operating income included a $24 million pretax gain related to the sale of Halliburton Measurement Systems (HMS).
"I am very pleased with our ESG operating performance during the quarter," said Dave Lesar, chairman, president and chief executive officer of Halliburton. "We continue to see growth and improvement in the energy services business. The rig count continues to increase, while our uplift in pricing, coupled with our focus on cost control, are providing stronger margins. Sequentially for the quarter, ESG revenue increased $88 million or 5%, operating income was up $57 million or 27% and operating margins increased by 2.4 percentage points over the first quarter 2004.
"Also, last week's confirmation of the Plan of Reorganization by the United States Bankruptcy Court was, we believe, a significant step forward on our path for resolving our asbestos liability. With this confirmation, we are encouraged that we will soon receive a favorable judgment as the plan moves to the district court. The large additional operating loss on Barracuda- Caratinga in the quarter was disappointing, but we have enhanced our project management and increased our effort to complete this difficult project."
2004 Second Quarter Segment Results
Energy Services Group
ESG posted second quarter 2004 revenues of $1.9 billion, a $124 million increase over the second quarter 2003, and operating income of $271 million, up $36 million from the same period in the prior year.
Production Optimization operating income for the second quarter 2004 was $121 million, a $9 million increase over second quarter 2003. The second quarter 2003 included a $24 million gain on the sale of HMS. The increase was primarily driven by production enhancement services, which improved operating income $27 million, largely derived from increased land rig activity, higher equipment utilization and improved pricing in the United States. Operating income from completions and reservoir optimization (formerly completion products and tools & testing) services increased $20 million on improved international demand. The second quarter 2004 included $2 million in equity losses from the Subsea 7 joint venture compared with $11 million in equity income in the second quarter 2003.
Fluids operating income for the second quarter 2004 was $77 million, a $9 million increase over the second quarter 2003. The increase in operating income was primarily attributable to a $6 million increase in cementing services due to higher land drilling activity in the United States and improved pricing. The second quarter 2003 included $4 million of equity losses from Enventure, the expandable casing joint venture.
Drilling and Formation Evaluation operating income of $59 million was up $10 million over the prior year quarter primarily due to continued improvement in logging services. Logging services operating income increased $9 million year-over-year on higher United States land rig counts and improvement in pricing. Drilling services saw an operating income increase of $3 million primarily due to a change in accounting estimate totaling $13 million to extend the useful life of directional drilling and logging-while-drilling tools for depreciation purposes, offset by weakness in the United Kingdom sector of the North Sea and Africa.
Landmark and Other Energy Services second quarter 2004 operating income was $14 million, compared to $6 million for the prior year period. This increase in operating income was attributed to strong commodity prices benefiting integrated solutions services in the second quarter 2004. Landmark Graphics achieved 3% growth in revenues over the prior year period, setting a new record for revenues in the second quarter of any year, due primarily to increased software and hardware sales principally in Asia.
KBR revenues for the second quarter 2004 were $3.1 billion, a 68% increase over the second quarter 2003. The improvement was due to government contract activities, primarily in the Middle East.
KBR operating loss for the second quarter 2004 was $277 million, compared to a $148 million loss in the second quarter 2003. Second quarter 2004 operating loss included a $310 million loss on the Barracuda-Caratinga project, which was partially offset by improved results on government services projects. Second quarter 2003 results included a $173 million loss on the Barracuda-Caratinga project.
KBR backlog at June 30, 2004 was $8.8 billion, up nearly $400 million from March 31, 2004, primarily due to work on the LogCAP III contract. Approximately 23% of the backlog was for fixed-fee contracts, compared to approximately 26% at March 31, 2004.
Halliburton's Iraq-related work contributed approximately $1.7 billion in revenues in the second quarter 2004 and $23 million in operating income before corporate costs and taxes.
Technology and Significant Achievements
Halliburton had a number of advances in technology and new contract awards.
Energy Services Group new technologies and contracts:
KBR new contract awards:
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