Halliburton Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Halliburton provides services and products to the upstream oil and gas industry through Completion and Production and Drilling and Evaluation segments.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $6.974 billion | $6.868 billion |
| Operating income (loss) | $(98) million | $1.023 billion |
| Net income (loss) attributable to Halliburton | $(18) million | $627 million |
| Diluted earnings (loss) per share | $(0.02) | $0.68 |
| Cash from operating activities | $349 million | $734 million |
| Capital expenditures | $685 million | $782 million |
- Revenue increased about 2%. International growth more than offset weaker North American activity.
- Completion and Production revenue fell 4% to $4.100 billion; segment operating income fell 41% to $615 million. Drilling and Evaluation revenue rose 11% to $2.874 billion; operating income rose 11% to $407 million.
- The consolidated operating loss primarily reflected a $1.0 billion pretax Macondo-related charge, compared with a $300 million charge in Q1 2012. Corporate and other expenses were $1.120 billion, versus $381 million.
- Operating cash flow less capital expenditures was approximately negative $336 million. The company cited working-capital investment, including higher receivables and inventories, as a cash use.
- At March 31, cash and equivalents were $2.029 billion; fixed-income investments were $418 million; long-term debt was $4.820 billion. Current assets were $13.152 billion and current liabilities $4.666 billion. Cash declined $455 million during the quarter.
- Quarterly dividend was $0.125 per share; dividends paid totaled $116 million. Halliburton repurchased approximately $50 million of shares under its repurchase program.
Material changes and operating conditions
- U.S. revenue was 49% of consolidated revenue, down from 56% in Q1 2012; revenue outside North America increased 21% year over year and represented 47% of total revenue.
- North American weakness reflected lower U.S. land production-enhancement activity, pricing pressure, and excess pressure-pumping capacity. U.S. land rig counts declined year over year, particularly for natural gas.
- International growth was reported across all regions, with activity gains in areas including Brazil, Mexico, Angola, Saudi Arabia, Australia, and China.
- The company paid $219 million in January to satisfy a guarantee related to the legacy Barracuda-Caratinga KBR matter; no amount for that obligation remained accrued at quarter-end.
Outlook, risks, and contingencies
- Management expected modest North American rig-count growth and improved efficiencies, but anticipated continued weak natural-gas activity and stimulation-pricing pressure. It intended to direct less 2013 capital to North American pressure pumping.
- Management expected gradual international activity and pricing improvement in select markets and continued to cite long-term demand for more complex reservoir services. Planned 2013 capital spending was approximately $3.0 billion.
- Macondo was the principal material uncertainty. The $1.3 billion aggregate reserve at March 31 included $278 million current and approximately $1.0 billion noncurrent. Settlement discussions were advanced but had not produced an agreement; the company said other reasonably possible claims could not be reasonably estimated and the reserve could change.
- The MDL trial was underway. Halliburton faced more than 650 complaints and related claims, as well as regulatory and government investigations. The company said it intended to defend the claims and maintained that BP’s contractual indemnity applied to certain compensatory claims; indemnity for punitive damages and certain penalties was not available under the cited court ruling. Insurance coverage and reimbursement were also subject to uncertainty.
- Halliburton reported ongoing DOJ and SEC-related internal investigations concerning compliance matters in Angola and Iraq; outcomes could not be predicted. Other disclosed exposures included $71 million of environmental accruals and $1.8 billion of outstanding letters of credit, guarantees, or surety bonds.
- Venezuelan trade receivables were $383 million, about 6% of gross trade receivables, and collection delays continued. The company also had $191 million of Venezuelan surety bonds outstanding.
- After quarter-end, Halliburton amended its revolving credit facility, increasing capacity from $2.0 billion to $3.0 billion and extending maturity to 2018; the full facility was available as of April 26, 2013.
Important facts for investors to verify
- Subsequent Macondo litigation, settlement developments, reserve changes, sanctions requests, and the scope of BP indemnity and insurance coverage.
- Whether operating cash flow and working-capital trends improve while the company funds planned capital spending and shareholder returns.
- North American pressure-pumping utilization and pricing, alongside the pace and profitability of international growth.
- Collection of Venezuelan receivables and developments in the Angola and Iraq compliance investigations.