Macondo Hits Halliburton Earnings

Macondo Hits Halliburton Earnings

Halliburton Co. reported a $13 million loss Monday for continuing operations for first quarter 2013 after its quarterly income of $624 million was offset by a $637 million after-tax charge related to Halliburton raising its reserve for Deepwater Horizon litigation.

Income for first quarter 2013 was also down from income from continuing operations for first quarter 2012 of $826 million. First quarter 2012 income included a $191 million after-tax charge for a reserve also related to Macondo litigation.

The company is in advanced stages of court-facilitated settlement discussions to resolve a substantial portion of private claims related to the Macondo incident, but has not yet reached a settlement.

"We are pursuing these settlement discussions because we believe than an early and reasonably-valued resolution is in the best interests of our shareholders," said Halliburton Chairman, President and CEO Dave Lesar in a statement.

The most recent offer includes stock and cash, with the cash components payable over an extended period of time. Discussions are in an advanced stage, but a settlement has not yet been reached.

Despite the Macondo-related charges, Lesar said in a statement he was pleased with the company's operational results as total company revenue reached a record $7 billion.

Lesar noted that the decline in the North America rig count and pricing headwinds were more than offset by Halliburton's expanding international business. North American sequential revenue declined 1 percent and operating income grew 30 percent, compared to a 3 percent decline in the U.S. rig count.

The company's Sperry Drilling, Multi-Chem and Baroid produce lines achieved record quarterly revenues, with Baroid and Drill Bits setting quarterly operating income records.

Margins improved approximately 400 basis points as the company started to benefit from lower cost guar, increased customer activity, internal cost efficiencies and higher service intensity.

"For these reasons, we expect margins to continue to expand over the course of the year, and we believe we may see modest pricing increases as customers adopt new technology to improve well production," Lesar commented.

International revenues rose 21 percent in first quarter 2013 compared to first quarter 2012. Significant improvement in the Australia, China and Saudi Arabia markets boosted the company's Middle East/Asia revenue and operating income by 25 percent and 51 percent respectively versus the prior year first quarter.

Higher activity levels in Eurasia, Nigeria and Central Africa boosted Halliburton's Europe/Africa/CIS revenue and operating income by 17 percent and 25 percent relative to first quarter 2012. Halliburton's Latin America revenue was up 21 percent from the same quarter in 2012, but operating income was down 11 percent due to severance costs in Argentina, mobilization costs on contracts in Brazil, and a reduction in the rig count on the company's Mexico projects as Halliburton waits on contracts to be retendered.

Halliburton's North America and international operations beat the expectations of analysts at Tudor, Pickering and Holt research.  In an April 22 research note, analysts noted that the larger than expected Macondo charge will draw questions, but Halliburton's operations should ultimately win out over the higher than expected Macondo resolution price tag.

Analysts said it was unclear how much of the offer would be recovered through the approximately $440 million of insurance that was still unused as of year-end 2012. However, Halliburton's liquidity and balance sheet do not pose concerns.


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