Halliburton's 2Q Profit Falls, But Beats Forecasts
Halliburton announced that net income for the second quarter of 2009 was $274 million, or $0.30 per diluted share excluding employee separation costs of $12 million, after tax, or $0.01 per diluted share. Reported net income for the second quarter of 2009 was $262 million, or $0.29 per diluted share. This compares to net income for the second quarter of 2008 of $504 million, or $0.55 per diluted share.
The second quarter of 2009 results were negatively impacted by the steep continued downturn in North America drilling activity. The second quarter of 2008 results were negatively impacted by a $30 million charge related to a patent settlement partially offset by a $25 million gain related to the sale of two investments in the United States.
Halliburton’s consolidated revenue in the second quarter of 2009 was $3.5 billion, compared to $3.9 billion in the first quarter of 2009. Revenue for most product service lines fell, with the exception of completion tools and software and asset solutions, primarily based on a reduction in North America rig count leading to lower pricing and demand for products and services. Consolidated operating income was $476 million in the second quarter of 2009 compared to $616 million in the first quarter of 2009.
"Weak global demand and volatility in the commodity markets continue to weigh on the oilfield services industry. The worldwide average rig count decreased 25% sequentially, further weakening industry fundamentals during the second quarter," said Dave Lesar, chairman, president and chief executive officer.
"North America continued to experience steep declines in drilling activity leading to increased overcapacity. North America average rig count declined in the second quarter by 39%. Activity in the United States has progressively shifted to unconventional plays, where horizontal drilling now accounts for 43% of the current rig count. This shift increases the demand for complex solutions, creating the opportunity for a packaged-services commercial approach helping to partially mitigate pricing erosion and protect market share.
"Due to the continued weakness in natural gas demand, reflected in the high injection rates for working gas storage, we believe it is unlikely that there will be a meaningful recovery in natural gas prices and, consequently, drilling activity for the remainder of the year.
"The downturn in international markets has not been as pronounced due to the strengthening commodity prices, deflationary cost environment, and stabilizing financial markets which are improving our customers' overall project economics. The strength of international markets will ultimately be dependent on the health of commodity pricing, financial markets, and robustness of global demand.
"Operating margins outside of North America remained at 20%. We rationalized our costs to offset pricing pressures; however, customers have continued to focus on aggressively lowering their project costs.
"We believe that the long-term economic fundamentals of our industry are bright. While we have taken prudent steps to control costs and improve financial flexibility, we continue to execute our strategy of maintaining disciplined investments in technology, capital equipment, and global infrastructure to ensure that we are well positioned at the other side of this cycle. The successful execution of this strategy has been validated by approximately $3.5 billion of recent contract awards.
"Although the depth and duration of the cycle remains uncertain, we believe the market will benefit companies with broad, integrated offerings, and a strong capital structure such as ours, allowing them to customize solutions across global markets," concluded Lesar.
2009 Second Quarter Results
Completion and Production (C&P) operating income in the second quarter of 2009 was $243 million compared to $363 million in the first quarter of 2009. North America C&P operating income decreased $114 million, primarily due to the decline in US land activity, volume reductions, and pricing declines across all product service lines in the United States. Latin America C&P operating income was flat as increased activity in Brazil and Mexico offset declines in Argentina and Colombia. Europe/Africa/CIS C&P operating income decreased $8 million as higher activity in Norway and Russia was outweighed by declines in Africa and the United Kingdom. Middle East/Asia C&P operating income increased due to a better mix of completion tools sales and increased activity in Australasia and the Northern Gulf.
Drilling and Evaluation (D&E) operating income in the second quarter of 2009 was $284 million compared to $304 million in the first quarter of 2009. North America D&E operating income declined by $36 million due to lower volumes and pricing declines across all product service lines except software and asset solutions. Latin America D&E operating income was flat as higher activity in Mexico offset sequential reductions in Colombia. Europe/Africa/CIS D&E operating income decreased as declines in Egypt and Angola offset higher activity in Russia and Norway. Middle East/Asia D&E operating income increased $22 million with higher activity in Asia outweighing activity declines in certain countries in the Middle East.
Significant Recent Events and Achievements
- Halliburton won a five-year, $1.5 billion contract with an Integrated Oil Company for its work throughout North America. The contract covers services that range from well construction to completion and production.
- Halliburton has been awarded over $1 billion in new contracts globally for the provision of engineered fluid solutions including $700 million for deepwater projects in Brazil, Gulf of Mexico, Indonesia, Angola and other countries and $300 million for shelf- and land-related work.
- Halliburton has been awarded a two-year contract by StatoilHydro to provide fluids systems for multiple fields, currently including cementing services for 20 rigs and drilling and completion fluids for 16 rigs on the Norwegian continental shelf. The contract is estimated by Halliburton to be valued at approximately $450 million and encompasses solutions offerings across both of Halliburton's business segments, Completion and Production and Drilling and Evaluation.
- Halliburton has been awarded a contract in Algeria for the provision of integrated project management for a number of delineation wells initially with the potential to expand to 120 wells for full field development.
- Halliburton has added to its integrated project management backlog with the addition of over 150 wells over the next three years in Latin America.
- Halliburton has been awarded a five-year contract for more than $100 million in the Middle East for directional/LWD services due to the success of the previous deployment of the StrataSteer® 3D geosteering service, InSite ADR™ azimuthal deep resistivity sensor, and Geo-Pilot® rotary steerable system.
- Halliburton has entered into agreements in Brazil and Iraq for the provision of wireline logging and formation evaluation technologies.
- Halliburton is augmenting its capability in the Caspian region in the anticipation of a significant five-year award for multiple services with the potential value of $200 million per year.
- Halliburton announced the release of the GEM™ Elemental Analysis tool, which offers rapid and precise evaluation of formations with complex mineralogies. As the newest addition to Halliburton’s portfolio of formation evaluation technologies, the GEM tool offers operators a complete elemental analysis solution for complex reservoirs and complements Halliburton's existing cuttings evaluation service performed while drilling. When combined with Halliburton's real-time data acquisition software, it offers customers onsite and remote visualization of formation elemental data quickly and accurately.
- Halliburton launched a next-generation stimulation vessel, the Stim Star Angola, in response to operators’ needs for stimulation treatments on offshore West Africa assets. The new vessel will serve as a high-performance platform for delivering technology and helping reduce rig downtime and associated costs for operators.
- Halliburton won three Hart’s E&P meritorious engineering achievement awards. The three winning Halliburton technologies and the categories in which they won are: the Acid-on-the-Fly blending system for stimulation; Delta Stim® completion service for completions; and Pore Pressure and Geomechanics Solution for intelligent systems and components.
- As of June 30, 2009, Halliburton had $3.1 billion in cash and equivalents and short- and long-term investments in United States Treasury securities. The Company has $1.2 billion of unused borrowing capacity available on its revolving credit facility and continues to maintain investment-grade debt ratings.
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