Halliburton Hit by Drilling Downturn in First Quarter 2009
Halliburton announced today that net income for the first quarter of 2009 was $378 million, or $0.42 per diluted share. This compares to net income for the first quarter of 2008 of $580 million, or $0.63 per diluted share. The first quarter of 2009 results were negatively impacted by the steep downturn in North America drilling activity and included $19 million of after-tax expenses, or $0.02 per diluted share, associated with employee separation costs.
Halliburton's consolidated revenue in the first quarter of 2009 was $3.9 billion, down 3% from the first quarter of 2008. Consolidated operating income was $616 million in the first quarter of 2009 compared to $847 million in the first quarter of 2008. With the exception of the software and asset solutions and the newly organized testing and subsea product service lines, results for all product service lines fell primarily due to lower demand for products and services in North America based on a reduction in rig count and pricing declines.
"During the first quarter, we experienced significant volume reduction and margin compression due to the steep downturn in North America drilling activity. The first quarter brought unprecedented declines in the rig count and prolonged weakness to the commodity markets. These industry-wide declines have been exacerbated by restrictions to some of our customers' access to capital and the decrease in global demand for oil and natural gas," said Dave Lesar, chairman, president and chief executive officer.
"The North America rig count has dropped approximately 30% during the first quarter, with areas such as the Rockies, Permian basin, and Mid-Continent being the most affected. This has resulted in a decrease in the volume of activity leading to overcapacity and related price erosion on remaining work. As a result, we experienced a 53% year-over-year decline in operating income in North America. Due to the sharpness of the decline, we have taken proactive measures to reduce costs.
"International markets have remained more resilient in the first quarter compared to the domestic market. Outside North America, revenue grew 3% on a year-over-year basis led by Latin America contributing 9%. Growth was significantly impacted by unfavorable currency movements across several regions particularly in countries such as Norway, United Kingdom, Brazil, and Mexico.
"International projects are now being deferred, and the tightness in the credit markets continues to impact independent operators globally. While integrated oil company and national oil company clients have not materially cut their spending, they are re-evaluating the economics of their projects amid a lower commodity price environment.
"Eastern Hemisphere revenue was relatively flat from the prior year. Strong performance in Africa helped to mitigate activity declines in Russia. In our Middle East/Asia region, revenue was flat as contract deferrals and the anticipated finalization of the Khurais project in Saudi Arabia offset increased revenues in Asia. Asia Pacific continues to benefit from our expanded technology and manufacturing infrastructure resulting in year-over-year operating income growth in India and Southeast Asia.
"Activity has increased in Latin America and combined with our technology leadership resulted in solid year-over-year performance in Mexico, Brazil, and Colombia.
"While international growth has slowed, operating margins outside North America remained at our target level of 20%. However, we anticipate continued margin pressure as global customers seek to lower their costs by securing cost concessions from their supply chain.
"Industry prospects will continue to be weak in the coming quarters, and visibility to the ultimate depth and length of this cycle remains uncertain. However, we believe that the long-term prospects of the industry remain sound. We will continue to manage through this downturn focusing on expanding our market position, reducing input costs, and delivering the superior execution our customers have come to expect. We will make the strategic investments to emerge even stronger when the industry recovers," concluded Lesar.
2009 First Quarter Results
Completion and Production (C&P) operating income in the first quarter of 2009 was $363 million, a decrease of $141 million or 28% from the first quarter of 2008. North America C&P operating income decreased 48%, primarily due to a decline in rig count, volume reductions, and pricing declines across all product service lines in the United States and Canada. The first quarter of 2008 included a $35 million gain related to the sale of a joint venture interest in the United States. Latin America C&P operating income increased 2% from increased completion tools and production enhancement activity in Brazil and Mexico. Europe/Africa/CIS C&P operating income increased 20% with higher demand for cementing services in Africa and production enhancement services in Europe. Middle East/Asia C&P operating income was flat with higher demand for production enhancement services and intelligent completion systems in Asia Pacific balancing out declines in completion tools and cementing in the Middle East.
Drilling and Evaluation (D&E) operating income in the first quarter of 2009 was $304 million, a decrease of $105 million or 26% over the first quarter of 2008. North America D&E operating income decreased 62%, primarily due to lower volumes and pricing declines across all product service lines. Latin America D&E operating income remained flat as higher demand for well construction technologies in Mexico, Colombia, and Ecuador was offset by weakness in Argentina and Venezuela. Europe/Africa/CIS D&E operating income decreased 18%, primarily due to decreased demand for drilling services in Europe and Russia. Middle East/Asia D&E operating income increased 28% over the first quarter of 2008, with the most significant impact coming from increased demand for drilling services in Asia Pacific. The first quarter of 2008 included a $23 million impairment charge for a Bangladesh oil and gas property.
Significant Events and Achievements
- Halliburton issued an aggregate amount of $2 billion in principal senior notes. The notes were issued in two tranches -- $1 billion of 10 1/2-year notes bearing interest at a fixed rate of 6.15% per year and maturing on September 15, 2019 and $1 billion of 30 1/2-year notes bearing interest at a fixed rate of 7.45% per year and maturing on September 15, 2039.
- Landmark released the PetroStor™ scalable disk storage platform, which provides customers with petabytes of online capacity. Tested and qualified with Landmark's exploration and production software, the solution is ideal for companies that need fast access to seismic files and archived project data.
- Halliburton announced the newest addition to its suite of perforating technologies, designed to enable better well completions and provide operators with access to reservoir targets that are beyond the limits of conventional high pressure technology. The tool, a perforating gun with a seven-inch outside diameter, can perform at pressures of up to 30,000 pounds per square inch (psi). It is the highest pressure-rated gun system available on the market today at that size, and it addresses the need for extreme high pressure capabilities in large casing sizes, specifically used in deepwater environments.
- Halliburton was awarded a major contract extension by Salym Petroleum Development N.V. (SPD) for exploration and production services in Western Siberia, Russia. The four-year contract calls for the provision of directional-drilling, measurement-while-drilling and logging-while-drilling, along with drilling fluids and cementing services and continues Halliburton’s proven record of service delivery in the SPD fields for the last three years. The new wells to be drilled, with an average true vertical depth of 2,600 meters, include 400 S-shaped wells plus directional and extended-reach wells.
Halliburton was awarded long-term, high-value contracts by British Petroleum (BP) Angola. BP's Angola program covers up to four developments, to be based on a standardized design, with drilling activity scheduled to commence in 2010. The first development in Block 31, PSVM, was recently sanctioned by BP Angola and its partners. Commitments related to the remaining three developments are anticipated to be awarded upon sanction of the additional projects, with the drilling program taking place over a multi-year period.
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