Halliburton Company (NYSE: HAL) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Halliburton provides products and services to the energy industry through Completion and Production and Drilling and Evaluation segments.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $5.798B | $5.074B | $11.475B | $9.358B |
| Operating income | $1.011B | $374M | $1.988B | $885M |
| Net income attributable to Halliburton | $610M | $109M | $1.261B | $372M |
| Diluted EPS | $0.68 | $0.12 | $1.39 | $0.41 |
| Operating margin | 17.4% | 7.4% | 17.3% | 9.5% |
Q2 revenue rose 14% year over year; first-half revenue rose 23%. Q2 operating income included $13M of SAP S/4 migration expense. The prior-year comparisons included Russia-related impairment charges of $344M for Q2 and $366M for the first half; excluding those charges, prior-year operating income was $718M and $1.251B, respectively. The Q2 2023 results also included a $104M pre-tax loss on Argentina Blue Chip Swap transactions. Q2 effective tax rate was 21.3%, versus 49.3%; first-half rate was 21.1%, versus 32.2%, with the 2022 rates elevated in part by Russia-related tax effects.
Segments and regions: Q2 Completion and Production revenue was $3.476B, up 19%, with $707M operating income. Drilling and Evaluation revenue was $2.322B, up 7%, with $376M operating income. Revenue growth was strongest in Latin America (+31%) and Middle East/Asia (+20%); Europe/Africa/CIS declined 3%. North America revenue increased 11%.
Cash flow, balance sheet and capital returns
- First-half operating cash flow was $1.174B, compared with $326M in 2022. Capital expenditures were $571M, implying approximately $603M of operating cash flow less capital expenditures.
- Cash and equivalents were $2.105B at June 30, 2023, down from $2.346B at December 31, 2022. Current assets were $11.443B and current liabilities $5.346B.
- Reported long-term debt was $7.931B; the filing’s total-debt fair-value table also reports carrying value of $7.931B. Available committed revolving credit was $3.5B, with facility expiry in April 2027.
- First-half cash uses included $348M of stock repurchases and $289M of dividends. The quarterly dividend was $0.16 per share; approximately $4.5B remained authorized for repurchases at quarter-end.
- Management’s capital return framework targets returning at least 50% of annual free cash flow through dividends and repurchases. The company expects 2023 capital spending of approximately 5–6% of revenue.
Changes, outlook and risks
Growth reflected higher pressure-pumping activity and pricing, completion-tool sales, artificial lift, and drilling-related services. International average rig count increased 18% year over year in Q2, while North America energy-services conditions softened, especially in gas basins; U.S. land rig counts declined during the quarter. Management expected North American upstream activity in the second half of 2023 to be slightly below the first half, while forecasting 2023 upstream spending growth in the high teens internationally and around 10% in North America.
Management cited volatile commodity prices, inflation, supply-chain lead times, demand uncertainty, recession concerns, and geopolitical conflicts as key operating factors. It expects oil and gas demand and upstream investment to grow over the coming years, while noting that results depend on customer spending, commodity prices, rig activity, and global economic and political conditions. The filing reports a $250M SAP S/4 migration investment over roughly two and a half years, with expected payback within three years.
Other notable exposures include delayed payments from a primary Mexican customer, which represented approximately 9% of receivables, and Argentina currency controls that restrict access to and remittance of U.S. dollars. Approximately $2.2B of letters of credit, guarantees, and surety bonds were outstanding; some instruments permit a request for cash collateral under triggering events, none of which had occurred. Management said ordinary-course legal matters were not expected to have a material adverse effect and reported no material change in previously disclosed risk factors.
Investor verification points
- Assess earnings growth against the prior-year Russia impairment charges and the current-period $104M Argentina swap loss.
- Track North American activity and pricing against international growth, and monitor commodity prices, customer spending, and rig counts.
- Review working-capital demands: receivables and inventory contributed to a net $589M first-half cash outflow, and inventory rose to $3.241B.
- Monitor Mexican customer payment timing, Argentina currency restrictions, and possible collateral demands under guarantees.
- Verify SAP migration spending, execution, and the stated payback expectation, alongside capital spending and shareholder returns.