Halliburton Company — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Halliburton provides oilfield services and products through Completion and Production and Drilling and Evaluation. This summary also includes reported fourth-quarter results.
Financial performance
- Revenue: $24.0 billion for 2018, up 16% from $20.6 billion in 2017. Completion and Production revenue rose 22% to $16.0 billion; Drilling and Evaluation rose 6% to $8.0 billion.
- Profit: Operating income was $2.47 billion, up 80% from $1.37 billion; operating margin was approximately 10.3%, compared with 6.7%. Net income attributable to Halliburton was $1.66 billion, or $1.89 per diluted share, versus a net loss of $463 million, or $0.53 per share, in 2017.
- Fourth quarter: Revenue was $5.94 billion, operating income $608 million, net income $668 million, and diluted EPS $0.76. Revenue declined 3.8% sequentially from the third quarter. North America revenue fell 11% sequentially, mainly from lower stimulation activity and pricing.
- Cash flow and investment: Operating cash flow was $3.16 billion, versus $2.47 billion in 2017. Capital expenditures were $2.03 billion, up from $1.37 billion. Cash and equivalents declined to $2.01 billion from $2.34 billion.
- Liquidity and debt: Total debt was $10.46 billion, down from $10.94 billion; cash-adjusted net debt was approximately $8.45 billion. Current assets of $11.15 billion exceeded current liabilities of $4.80 billion. The full $3.0 billion revolving facility was available at year-end.
- Margins and tax: The 2018 effective tax rate was 8.7%, including a $306 million net tax benefit from a corporate-structure change and other tax items. Results also included $265 million of Venezuela-related impairments and charges.
Changes versus prior year
- Revenue growth reflected higher pressure-pumping, drilling and artificial-lift activity, particularly in North America. North America accounted for 60% of 2018 revenue, compared with 56% in 2017.
- International revenue grew 6%, its first annual increase since 2014, although management described the recovery as early-stage and pricing pressure as ongoing.
- Operating income improvement was partly offset by Venezuela charges: $265 million in 2018 versus $647 million in 2017. The 2018 charge wrote down the remaining Venezuela investment; revenue from Venezuelan customers shifted to a cash basis from April 2018.
- Shareholder distributions included $630 million of dividends and $400 million of share repurchases. The quarterly dividend was $0.18 per share.
Outlook, risks and notable items
- Management expected 2019 capital expenditures of approximately $1.6 billion, about 20% below 2018, focused on selected technology and production capabilities.
- For North America, management anticipated continued pricing pressure in the first quarter of 2019, with potential improvement later in the year if commodity prices are supportive, Permian takeaway constraints ease and drilled-but-uncompleted wells support activity. These are expectations, not guaranteed outcomes.
- Management expected modest international activity improvement during 2019, while noting the recovery remained at an early stage. It planned to prioritize cash generation, working capital, cost flexibility, strategic investment, debt reduction and shareholder returns.
- Key risks include volatile oil and gas prices and customer spending, service-price competition and North American capacity constraints, geopolitical and sanctions exposure, customer payment/receivable risk, environmental and hydraulic-fracturing regulation, cybersecurity, and operational or fixed-price project overruns.
- Venezuela remains a material exposure to monitor: Halliburton wrote down its remaining investment in 2018 and disclosed that its authorization to continue limited operations was scheduled to expire July 27, 2019, subject to applicable sanctions and licensing.
- The filing reports an unqualified audit opinion and effective internal control over financial reporting. Adoption of the new lease standard in 2019 was expected to add approximately $1.0–$1.2 billion of assets and liabilities to the balance sheet.
Important facts for investors to verify
- Whether North American completion demand and pricing recovered as management anticipated, and how takeaway constraints and customer budgets evolved.
- Cash conversion and capital discipline, including whether 2019 capex fell to the stated approximate $1.6 billion target.
- Debt, liquidity and shareholder distributions relative to operating cash flow, especially through commodity-price or activity downturns.
- Collectability and remaining exposure related to Venezuela, as well as the effect of sanctions and operating-license changes.
- The sustainability of reported earnings given the unusually low effective tax rate and material tax benefits in 2018.