Halliburton Company — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and reporting period
Halliburton provides products and services to the energy industry, operating through Completion and Production and Drilling and Evaluation segments in more than 70 countries. Results are closely tied to customer spending on oil and gas exploration, development, and production.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3.860 billion | $2.975 billion | $11.018 billion | $11.208 billion |
| Operating income (loss) | $446 million | $142 million | $1.250 billion | $(2.340) billion |
| Net income (loss) attributable to Halliburton | $236 million | $(17) million | $633 million | $(2.710) billion |
| Diluted earnings (loss) per share | $0.26 | $(0.02) | $0.71 | $(3.08) |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $1.229 billion | $1.243 billion |
- Q3 revenue rose 30% year over year; operating margin was approximately 11.6%, versus 4.8% a year earlier.
- Q3 segment revenue was $2.136 billion for Completion and Production, up 36%, and $1.724 billion for Drilling and Evaluation, up 23%. Segment operating income was $322 million and $186 million, respectively.
- For the first nine months, revenue declined 2% year over year, while operating results improved substantially. The 2020 period included $3.353 billion of impairment and other charges; 2021 included $12 million.
- Nine-month capital expenditures were $483 million; dividends paid were $121 million. Cash and equivalents were $2.632 billion at September 30, compared with $2.563 billion at December 31, 2020.
- Balance-sheet debt carrying value was $9.136 billion, down from $9.827 billion at year-end 2020. Current maturities were $11 million, versus $695 million at year-end. Halliburton reported $3.5 billion of available committed revolving credit.
- Current assets were $9.431 billion and current liabilities $3.946 billion at quarter-end. The quarterly dividend was $0.045 per share. No shares were repurchased under the authorized program during the quarter; approximately $5.1 billion remained authorized.
Material changes versus comparable periods
- Q3 growth was led by North America, where revenue rose 64%, and Latin America, also up 64%. International revenue overall increased 13%; Europe/Africa/CIS rose 4%, while Middle East/Asia declined 2%.
- Management attributed improved Q3 operating results to higher commodity prices, increased activity and utilization, and operating leverage from 2020 cost reductions.
- Nine-month revenue remained below 2020, with declines in Drilling and Evaluation and in Europe/Africa/CIS and Middle East/Asia. Latin America revenue increased 36% and North America increased 2%.
- Halliburton repaid $185 million of 8.75% debentures at maturity and redeemed $500 million of 3.25% notes at par during 2021.
Outlook, commentary, risks, and unusual items
- Management expected global oil demand to continue improving in Q4 2021 and into 2022, with international activity momentum accelerating and moderate North American drilling and completions growth in Q4. It anticipated higher international pricing in some markets and North American pricing gains. These are expectations, not company earnings guidance.
- Full-year 2021 capital spending was expected to be approximately 5–6% of revenue. Management said it would balance investment, liquidity, debt reduction, and dividends as market conditions evolve.
- Management cited ongoing COVID-19 disruptions and the possibility of new restrictions as risks to demand and activity. Other exposures include commodity-price and customer-spending volatility, delayed or defaulted customer payments, geopolitical conditions, and foreign-exchange factors. A Mexican customer represented approximately 10% of receivables; payments had been delayed but were not disputed, and management did not expect material write-offs.
- Q3 special items included $36 million of catch-up depreciation after Halliburton discontinued the proposed sale of its Pipeline and Process Services business, $15 million of severance, $35 million of other charges, and a $74 million gain on a U.S. real-estate transaction, for net charges of $12 million.
- The real-estate transaction included a sale-leaseback, $87 million of gross cash proceeds, and new operating lease right-of-use assets and liabilities of $276 million. Lease terms are 12 or 15 years, with extension options and annual rent escalators.
- Approximately $1.9 billion of letters of credit, bank guarantees, and surety bonds were outstanding; some could require cash collateral upon triggering events, none of which had occurred. Management said ordinary-course legal matters were not expected to materially adversely affect results or financial position. S&P’s long-term rating was BBB+ with a negative outlook; Moody’s was Baa1 with a stable outlook.
- Management stated that no material risk-factor changes had occurred since the 2020 Form 10-K. It also cautioned that interim results may not indicate full-year results.
Important facts for investors to verify
- Whether rising activity and pricing, particularly in North America and international markets, translated into sustained revenue growth and margins after Q3.
- How much of the nine-month operating-income improvement reflects underlying operations versus the unusually large 2020 impairment comparison.
- Execution of the 2021 capital-spending outlook and the balance among liquidity, debt reduction, dividends, and potential share repurchases.
- Collection timing and credit quality of receivables, including the Mexican customer concentration, and any collateral requirements under outstanding guarantees.
- The ongoing costs and obligations associated with the real-estate sale-leaseback and the decision to retain the Pipeline and Process Services business.