Halliburton Company (NYSE: HAL) — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Dollar amounts are U.S. dollars.
Business context
Halliburton provides oilfield products and services in more than 70 countries through Completion and Production (C&P) and Drilling and Evaluation (D&E). The year was marked by COVID-19, a sharp fall in oil demand and prices, and a severe contraction in customer activity. U.S. operations generated 38% of revenue, down from 51% in 2019.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $14.445 billion | $22.408 billion |
| Operating income (loss) | ($2.436 billion) | ($448 million) |
| Net income (loss) attributable to Halliburton | ($2.945 billion) | ($1.131 billion) |
| Diluted loss per share | ($3.34) | ($1.29) |
| Cash from operating activities | $1.881 billion | $2.445 billion |
| Capital expenditures | $728 million | $1.530 billion |
| Cash and equivalents at year-end | $2.563 billion | $2.268 billion |
| Total debt at year-end | $9.827 billion | $10.327 billion |
| Net working capital | $5.054 billion | $6.334 billion |
- Revenue declined 36%. C&P revenue fell 44% to $7.839 billion; D&E revenue fell 21% to $6.606 billion.
- Segment operating income, before corporate costs and separately reported impairments and other charges, was $995 million for C&P and $569 million for D&E. This equates to approximate segment margins of 12.7% and 8.6%, respectively. The consolidated reported operating margin was approximately negative 16.9%.
- Operating cash flow included an approximately $800 million net benefit from changes in receivables, inventories, and payables, primarily lower receivables; severance payments were approximately $350 million. Operating cash flow less capital expenditures was approximately $1.153 billion, a simple calculation rather than a company-defined free-cash-flow measure.
- Year-end liquidity included $2.563 billion of cash and the full $3.5 billion revolving credit facility, which expires in 2024. The company reported no financial covenants or material adverse change provisions in its bank agreements.
Fourth-quarter results and material changes
Fourth-quarter 2020 revenue was $3.237 billion, compared with $5.191 billion in fourth-quarter 2019. The company reported a $96 million operating loss, a $227 million net loss, and a $0.27 loss per share for the quarter. Revenue improved from the third quarter’s $2.975 billion, and management cited improved margins as activity recovered from 2020 lows.
- North America revenue declined 52% to $5.731 billion; international revenue declined 17%. The average worldwide rig count fell 38% in 2020, while North America’s average rig count fell 52%.
- Impairments and other charges increased to $3.799 billion from $2.506 billion. The 2020 total included $2.629 billion of long-lived asset impairments, $505 million of inventory costs and write-downs, and $384 million of severance, among other charges. Long-lived impairments included pressure-pumping and drilling equipment and real estate.
- Cash dividends paid fell to $0.315 per share from $0.72 after the quarterly rate was reduced from $0.18 to $0.045 in the second quarter. Halliburton said the reduction lowered 2020 cash outflows by approximately $360 million.
- Headcount decreased to approximately 40,000 from 55,000. Capital expenditures fell 52% year over year.
Outlook, commentary and risks
- Management expected international activity to vary by region, with a possible increase in the second half of 2021 compared with the second half of 2020. In North America, management anticipated continued completions improvement, subject to pandemic developments, economic activity, and commodity prices.
- Planned 2021 capital expenditures were approximately $750 million, described as relatively flat with 2020. Management emphasized cost discipline, digital technology, capital efficiency, international growth, and free cash flow.
- Management noted that oil prices had returned to pre-pandemic levels but cautioned that recovery remained uncertain given COVID-19 developments and the potential return of spare production capacity.
- Principal risks include volatile oil and gas prices and customer spending, pandemic-related disruptions and customer credit stress, environmental and climate regulation (including hydraulic-fracturing restrictions), geopolitical and sanctions exposure, foreign-exchange risk, cybersecurity, and potential further impairments.
- Customer payment delays and defaults had occurred. The allowance for credit losses was $824 million, primarily associated with a Venezuelan customer. Halliburton had discontinued operational activity in Venezuela by year-end.
- Approximately $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding; the filing states that no related triggering events had occurred. Management said ordinary-course legal and governmental matters were not expected to have a material adverse effect, while noting litigation outcomes are uncertain.
Most important facts for investors to verify
- Whether operating activity, pricing, and margins recovered as management expected, particularly in North America and international markets.
- The assumptions underlying the $3.799 billion of impairments and whether additional asset impairments or inventory charges arise.
- Cash conversion and receivable collectability, including the Venezuelan-related credit allowance and customer defaults.
- Debt maturities, liquidity availability, and the sustainability of the reduced dividend amid the stated focus on liquidity and debt reduction.
- The pace and cost of workforce and real-estate restructuring, and whether planned 2021 capital spending remained near $750 million.
KPMG issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2020.