Halliburton Company — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Dollar amounts are in millions unless otherwise stated. Halliburton provides products and services to the energy industry through Completion and Production and Drilling and Evaluation segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $5,074 | $3,707 | $9,358 | $7,158 |
| Operating income | $374 | $434 | $885 | $804 |
| Net income attributable to Halliburton | $109 | $227 | $372 | $397 |
| Diluted EPS | $0.12 | $0.26 | $0.41 | $0.45 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $326 | $612 |
| Capital expenditures | Not provided quarterly | Not provided quarterly | $410 | $295 |
- Q2 revenue rose 37% year over year, while operating income declined 14% and attributable net income declined 52%. The $344 Russia-related charge weighed on reported operating income; before that charge, operating income was $718, compared with $434 in Q2 2021.
- Q2 reported operating margin was approximately 7.4%, versus 11.7% a year earlier; excluding the Russia charge, it was approximately 14.2%. These percentages are calculated from reported revenue and operating income.
- First-half revenue increased 31%, operating income increased 10%, and attributable net income decreased 6% year over year. First-half operating cash flow less capital expenditures was negative $84, compared with positive $317 in 2021.
- Segment Q2 revenue and operating income increased year over year: Completion and Production revenue was $2,911, up 42%, with operating income of $499; Drilling and Evaluation revenue was $2,163, up 30%, with operating income of $286.
- North America revenue grew 55% in Q2; international revenue grew 24%. Management cited higher activity and pricing, especially North American pressure pumping, as key drivers.
Balance sheet, debt and liquidity
- At June 30, cash and equivalents were $2,226, down from $3,044 at December 31, 2021. Current assets were $10,262 and current liabilities were $4,766.
- Debt carrying value was $8,525, compared with $9,138 at year-end 2021. Halliburton redeemed $600 of 3.8% senior notes due 2025 for $641 cash, recording a $42 loss on early extinguishment. A new $3.5 billion revolving credit facility, expiring in April 2027, was fully available at quarter-end.
- Management said approximately $1.1 billion of debt maturities were due through the end of 2027 and considered liquidity adequate, citing cash, operating cash generation and the credit facility. S&P and Moody’s ratings were BBB+ and Baa1, respectively, both with stable outlooks.
- First-half cash declined by $818. Operating cash flow included a negative $810 net impact from receivables, inventory and accounts payable. Cash uses included debt redemption, $410 of capital expenditures and $217 of dividends.
Material changes, outlook and risks
- Halliburton decided to sell its Russian operations after sanctions following Russia’s invasion of Ukraine. It signed a non-binding letter of intent with its Russian employee group and was negotiating definitive documents. The held-for-sale assets were written down to $1, generating a $344 Q2 pre-tax charge; first-half impairment and other charges totaled $366, including a $22 Ukraine-related charge from Q1.
- The Q2 effective tax rate was 49.3%, versus 22.0% in the prior-year quarter; the company attributed the higher rate primarily to the Russia sale decision and a related increase in the valuation allowance on foreign tax credits. First-half rates were 32.2% and 22.6%, respectively.
- Management expected 2022 capital spending of approximately 5–6% of revenue, international customer spending growth in the mid-teens, and North American customer spending growth above 35%. It expected North American pricing gains to continue. These are management expectations, not guarantees.
- Management described oil and gas demand and activity as subject to uncertainty from inflation, potential economic slowdown, COVID-19 effects, OPEC+ actions, geopolitical instability, sanctions and volatile commodity prices. Supply-chain, labor, logistics and input-cost pressures persisted; the company said it sought to pass cost increases to customers and mitigate their impact.
- Other risks include delayed or defaulted customer payments, including payment delays in Mexico; further Russia/Ukraine disruption, sanctions, litigation or severance costs; and international regulatory, export-control and anti-corruption compliance risks. About $1.9 billion of letters of credit, guarantees and surety bonds were outstanding; some letters of credit could require cash collateralization upon specified triggering events, none of which had occurred.
- Legal and governmental proceedings arise in the ordinary course; management did not expect them to materially adversely affect consolidated results or financial position, while noting outcomes cannot be assured. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the proposed Russian-operations divestiture was completed, and whether further charges, liabilities or cash costs arose.
- Whether higher activity and pricing translated into sustained margins and operating cash flow, given first-half working-capital outflows.
- Progress against the 2022 capital-spending and regional customer-spending outlook, and sensitivity to commodity prices, inflation and supply constraints.
- Receivables collection trends, particularly in Mexico, and any changes in customer credit quality or required collateral under guarantee arrangements.
- Debt repayment plans, liquidity needs and dividend decisions as market conditions evolve.