Halliburton Announces Third Quarter Earnings of $0.58 Per Diluted Share
Halliburton (NYSE:HAL) reports income from continuing operations in the third quarter of 2006 was $615 million, or $0.58 per diluted share. This compares to income from continuing operations of $492 million, or $0.47 per diluted share, in the third quarter of 2005. Net income in the third quarter of 2006 included a $4 million after-tax loss related to discontinued operations, while net income in the third quarter of 2005 included after-tax income from discontinued operations of $7 million.
Consolidated revenue in the third quarter of 2006 was $5.8 billion, up 19% from the third quarter of 2005. This increase was largely attributable to higher activity in the Energy Services Group, particularly in North America.
Consolidated operating income was $968 million in the third quarter of 2006 compared to $680 million in the third quarter of 2005. The Energy Services Group (ESG) benefited from increased customer activity and pricing gains. Operating margins at ESG were their highest ever, at 26.7%. Operating income for the third quarter of 2005 included $85 million in income on the sale by KBR of an equity investment in a toll road.
"This was an exceptional quarter for Halliburton. The Energy Services Group improved on its impressive second quarter results, growing revenue 9 percent sequentially, and again setting new records for revenue, operating income, and operating margins. I'm also pleased with the quarterly performance of KBR, which posted a 7.5 percent operating margin in the Energy and Chemicals segment," said Dave Lesar, chairman, president, and chief executive officer of Halliburton.
2006 Third Quarter Segment Results
Energy Services Group
ESG posted record revenue of $3.4 billion in the third quarter of 2006, a $795 million or 31% increase over the third quarter of 2005. ESG posted record operating income of $906 million, up $340 million or 60% from the same period in the prior year. ESG's record operating margin was 26.7% during the third quarter of 2006, a 490 basis point improvement from the third quarter of 2005. Hurricanes in the third quarter of 2005 negatively impacted ESG operating income by approximately $28 million.
Production Optimization operating income for the third quarter of 2006 was $406 million, an increase of $158 million or 64% over the third quarter of 2005. Production Enhancement services operating income grew 58%, with improvements in all regions, driven by strong demand for well stimulation services and improved pricing in the United States and Canada. Production Enhancement results also benefited from improved asset utilization and increased well stimulation services in Venezuela, increased offshore activity in Mexico, and strong activity in northern Africa. Completion Tools operating income more than doubled, with improvements in all regions, due to increased sales in Brazil, Malaysia, Sakhalin, Angola, and throughout the Middle East.
Fluid Systems operating income for the third quarter of 2006 was $211 million, a $72 million or 52% increase over the third quarter of 2005. Cementing services operating income increased 49%, with improvements in all regions, due to increased activity and improved pricing. Baroid Fluid Services operating income grew 60% on improved pricing and better product mix in the United States, growth in deepwater activity in the Gulf of Mexico, and increased activity in Latin America and the Middle East.
Drilling and Formation Evaluation operating income for the third quarter of 2006 was $227 million, an $83 million or 58% increase over the prior year third quarter. Sperry Drilling Services operating income increased 68%, with improvements in all regions, led by the Gulf of Mexico, Asia Pacific, and the Middle East. The demand for Geo-Pilot and GeoTap systems contributed to sales growth in excess of 60% for these technologies over the prior year period. Wireline and Perforating services operating income increased 53% due to increased activity and improved asset utilization in the United States and Asia Pacific. Demand for services in the Middle East and pricing improvement also contributed to Wireline and Perforating services' increase in operating income. Security DBS Drill Bits operating income improved 37% over the prior year third quarter, reflecting improved fixed cutter and roller cone bit activity in the United States, the Middle East, and Asia Pacific.
Digital and Consulting Solutions operating income in the third quarter of 2006 was $62 million, an increase of $27 million or 77% compared to the prior year quarter. Landmark's operating income more than doubled compared to operating income of the prior year period, posting improvements in all regions on stronger software sales.
KBR revenue for the third quarter of 2006 was $2.4 billion compared to $2.3 billion in the third quarter of 2005. Operating income for the third quarter of 2006 was $98 million compared to operating income of $140 million in the prior year third quarter.
Government and Infrastructure operating income for the third quarter of 2006 was $53 million, compared to $150 million in the third quarter of 2005. Results in the third quarter of 2006 included an impairment charge of $32 million on a railroad investment in Australia. Third quarter of 2005 results included $85 million in income on the sale of KBR's equity investment in a toll road.
Energy and Chemicals posted operating income of $45 million in the third quarter of 2006 compared to an operating loss of $10 million in the third quarter of 2005. Third quarter 2005 results were impacted by $47 million of charges related to an Algerian joint venture and an additional $23 million loss on an Algerian gas processing plant project.
Halliburton's Iraq-related work contributed approximately $1.2 billion in revenue in the third quarter of 2006 and $45 million of operating income, a 3.7% margin, before corporate expenses and taxes.
As previously announced in September 2006, the company's Board of Directors authorized a $2 billion increase in its common share repurchase program. In the third quarter of 2006, the company repurchased 26.6 million shares at an average price of $32.51 per share, for approximately $865 million. Approximately 31.6 million shares at an average price of $32.99 per share have been repurchased since the commencement of the program in March 2006.
Technology and Significant Achievements
Halliburton made a number of advances in technology and new contract awards.
Energy Services Group new contract awards and technologies:
- Halliburton's Fluid Systems segment has been awarded a four-year, $50 million contract to provide cementing services for TOTAL E&P INDONESIE offshore Balikpapan, East Kalimantan, Indonesia. Work began in the second quarter of 2006 and involves the provision of cementing services on all offshore rigs contracted by TOTAL E&P INDONESIE in the Sisi Nubi field development for the duration of the contract, as well as for development wells to be drilled in Bekapai's Peciko field, and exploration wells to be drilled by jack-up and floating rigs. The work will be supported from a new, purpose-built Halliburton service facility in Balikpapan, incorporating the country's largest fluids laboratory.
- Halliburton's Drilling and Formation Evaluation segment has been awarded a contract valued at more than $60 million from TOTAL E&P INDONESIE to provide Geo-Pilot rotary steerable systems and directional and logging-while-drilling services for the Peciko, Bekapai, Sisi and Nubi gas fields, offshore Balikpapan, East Kalimantan, Indonesia.
- The Abu Dhabi Company for Onshore Oil Production (ADCO) has awarded Halliburton contracts valued at more than $70 million for cementing services, stimulation services, and special tools. Under the three-year agreement, Halliburton will provide optimum solutions to ongoing ADCO exploration and production activities located in the onshore fields of Abu Dhabi, United Arab Emirates.
- Halliburton's Production Optimization segment has added a breakthrough technology to its suite of stimulation products, GasPerm 1000(SM) service. GasPerm 1000 service helps improve production from unconventional reservoirs including tight gas, shales, and coalbed methane. Based on a newly developed microemulsion surfactant, the service helps remove water drawn into the formation during the fracturing process. Removing the water can improve permeability to gas at the fracture face and help increase gas production. In addition, GasPerm 1000 service represents a safety and environmental advancement, replacing methanol in many applications.
- Landmark, a brand of Halliburton's Digital and Consulting Solutions segment, introduced a new high-performance team-room visualization and interpretation solution at the Society of Exploration Geophysicists trade show in New Orleans. This new solution features Landmark's GeoProbe software, the Verari Systems(TM) E&P 7500 visualization server, and high-end NVIDIA Quadro graphics. It is specifically designed to help upstream oil and gas companies affordably manage large regional data sets, utilize advanced multi-attribute visualization, and enable rapid, basin-scale decision-making.
KBR new contract awards:
- KBR has signed a contract to provide project management and cost-reimbursable engineering, procurement, and construction management (EPCM) services to Qatar Shell GTL Limited, a Royal Dutch Shell plc subsidiary, for the Pearl gas-to-liquids (GTL) project in Ras Laffan, Qatar. KBR will undertake the work in a joint venture with JGC of Japan, incorporating the services of MWKL, a KBR/JGC subsidiary.
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