Halliburton Company — Q3 2020 Form 10-Q
Reporting period: Quarter ended September 30, 2020; comparative figures are for Q3 and the first nine months of 2019. Amounts are in U.S. dollars unless stated otherwise. Halliburton provides products and services to the energy industry through Completion and Production and Drilling and Evaluation segments.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2.975 billion | $5.550 billion | $11.208 billion | $17.217 billion |
| Operating income (loss) | $142 million | $536 million | $(2.340) billion | $1.204 billion |
| Net income (loss) attributable to Halliburton | $(17) million | $295 million | $(2.710) billion | $522 million |
| Diluted earnings (loss) per share | $(0.02) | $0.34 | $(3.08) | $0.60 |
| Cash from operating activities | Not presented for the quarter | $1.243 billion | $1.278 billion |
- Q3 operating income included $133 million of severance and other charges. Nine-month operating results included $3.353 billion of impairments and other charges, principally long-lived asset impairments, severance and inventory write-downs.
- Q3 segment revenue and operating income were $1.574 billion and $212 million for Completion and Production, and $1.401 billion and $105 million for Drilling and Evaluation. Management said operating margins in both segments improved year over year despite lower activity; the filing does not provide clear numerical segment margin percentages in the text.
- At September 30, cash and equivalents were $2.115 billion, total debt was $9.827 billion, and available committed revolving credit was $3.5 billion. Total debt comprised $195 million of current maturities and $9.632 billion of long-term debt. Shareholders’ equity was $5.203 billion.
- Nine-month capital expenditures were $510 million. Operating cash flow less capital expenditures was approximately $733 million, calculated from the reported figures. Cash declined $153 million from year-end 2019.
Material changes versus comparable periods
- Q3 revenue fell 46% year over year; nine-month revenue fell 35%. The largest Q3 regional decline was North America, down 67%; international revenue declined 23% overall, according to management.
- Q3 Completion and Production revenue declined 55% and Drilling and Evaluation revenue declined 31%. For the first nine months, the respective declines were 45% and 17%.
- Nine-month operating results swung to a $2.340 billion loss from $1.204 billion of operating income, largely reflecting the $3.353 billion charge total versus $308 million in the prior-year period.
- In March, Halliburton issued $1.0 billion of 2.92% senior notes due 2030 and repurchased $1.5 billion of notes due 2023 and 2025. The early repurchase generated a $168 million loss on extinguishment of debt.
- The quarterly dividend was reduced from $0.18 to $0.045 per share beginning in Q2 2020. Nine-month dividends paid were $238 million, compared with $472 million in 2019.
Outlook, management commentary and risks
- Management said demand recovery was beginning, but emphasized continuing uncertainty from COVID-19, low oil prices and customer spending. WTI averaged about $41 per barrel in Q3, approximately 28% below its 2019 average. Global rig counts were at historically low levels.
- Management anticipated North America land completions activity would rise by a double-digit percentage in Q4 as operators worked through drilled-but-uncompleted wells, followed by seasonal deceleration. It expected international activity declines to slow and believed activity was nearing a bottom. These are expectations, not guaranteed results.
- Full-year 2020 capital expenditures were expected to be less than $800 million, approximately 48% below 2019. The filing does not provide formal earnings or revenue guidance.
- Management cited cost reductions through workforce reductions, facility consolidation, streamlined support functions and other service-delivery efficiencies. It stated that cash, operating cash flow and committed credit were expected to provide sufficient liquidity. Credit ratings were BBB+ (S&P) and Baa1 (Moody’s), both with negative outlooks.
- Key risks include prolonged or renewed pandemic-related disruptions, lower oil prices and activity, customer payment delays or defaults, further impairments (including possible goodwill impairment), supply-chain and operational disruption, and possible additional workforce or facility restructuring. The company said it could not reasonably estimate the duration or full financial impact of these conditions.
- Approximately $1.9 billion of letters of credit, bank guarantees and surety bonds were outstanding; some letters of credit could require cash collateralization if specified triggering events occur. Management did not expect ordinary-course legal proceedings to have a material adverse effect.
- OFAC restrictions effective April 2020 halted most operations in Venezuela; remaining permitted activity was limited to safety, asset preservation and winding down. Halliburton said remaining assets could be expropriated but did not expect a material financial effect, having previously written down its investment.
Important facts for investors to verify
- Whether oilfield activity, pricing and customer spending recover as management anticipated, especially in North America and international markets.
- Whether receivables remain collectible: management reported delayed payments and defaults in the industry, and the balance sheet showed an $818 million allowance for credit losses against receivables.
- Whether additional asset, inventory or goodwill impairments, severance costs or facility-exit costs arise as market conditions evolve.
- Whether operating cash flow and the $3.5 billion committed credit facility remain adequate relative to debt maturities, customer-payment risk and ongoing cash requirements.
- Whether the reduced dividend is maintained and how capital spending and any future share repurchases are balanced against liquidity and debt reduction.