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Halliburton Looking to 'Better 2019' as Company Prepares for Rough Q4; Calls Bottom

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Halliburton reported its Q3 2018 results.

Highlights from its release and conference call are below, including the company's lower expectations for 4Q and high hopes for 2019.

In the Q3 conference call, CEO Jeff Miller summed up a sluggish Q3, commenting:

• "In North America, the combination off-take capacity constraints and our customers exhausting their budgets led to less demand for completion services than expected. Customers have responded differently to [Permian] takeaway constraints - some have firm takeaway capacity [and] others have options in other basins and have shifted focus elsewhere. "

• "In the Eagle Ford, we’re seeing operators who been highly efficient throughout the year, cutting back activity as a result of deflated budgets. In the Midcontinent Rockies, operators are staying within their cash flow obligations for the year."
  

Q4 'A Bottom'; Asserts that Market will 'Get Better' in 2019

• In its Q3 call, CEO Jeff Miller commented: "We believe that the market will get better in the first quarter of 2019 and sets up for continued momentum throughout the year. We believe that the fourth quarter of 2018 will be the bottom in North America land."

• CFO Chris Weber added: "Right now, Jeff, talked about the North America land reaching a bottom in the fourth quarter. Don't want call bottom on anything else at this point, but we do think from an activity perspective North America land in the fourth quarter feels like a bottom."

Rough Q4 Ahead: "Now, turning to the guidance for the fourth quarter. As is typical, a combination of weather, holidays, budget constraints and year-end sales make forecasting a challenge, but this is how we currently see it playing out.

"In our C&P division, we expect the results to be down in the fourth quarter, primarily due to the North America land market, where we expect the activity level of our pressure pumping customers to decrease by a low double-digit percentage in the fourth quarter. This will mean lower utilization for our equipment, less efficient operations and continued pricing pressure. Also, as Jeff mentioned earlier, we will continue performing incremental maintenance in the fourth quarter to prepare for a busy 2019."

Expects Eagle Ford, DJ Basin to Bounce Back; Noncommital on Permian

In Halliburton's Q3 call, Bill Herbert from Simmons asked: "Can you discuss with regard to Q1, which basins do you think will be strongest earliest and which ones will lag relative to Q4, in terms of activity?"

• Miller responded: "Yes. Bill, all behave differently I suppose. I would say, probably Eagle Ford response probably more quickly with budget resets. I think probably we’d expect some response in the Northern Region as we -- or say Northern Region, DJ, Eagle Ford, -- DJ and sort of Bakken as things reset up there."
  

Hebert added: "[In regard to Permian operators,] do you expect them to lag a little bit waiting for incremental pipeline capacity as that unfolds over the course of 2019?"

• Miller: "Yes. The trouble, Bill, every customer is different and each has their own strategy and response to what out there. So I’m careful when I make blanket statements. So, if you just step back and look at the kind of consolidation that’s happen in that market, that certainly doesn't happen to do less, the kind of activity that we see out there. So the timing and pace, so I think will be an individual decision by different customers, but clearly they’ll be a reloading that goes into next year."
  

Q3 Financials / Operating Highlights

• Income from continuing operations of $435 million, or $0.50 per diluted share, for the third quarter of 2018 - down -15% from prior quarter - likely due to frac downturn in the Permian.

President & CEO Jeff Miller commented: “Total company revenue of $6.2 billion was essentially flat quarter over quarter, while operating income was $716 million, a 9% decrease compared to the second quarter of 2018, largely due to the softening North America market for completion services."

Operating Segments

Completion and Production

Completion and Production revenue in the third quarter of 2018 was $4.2 billion, essentially flat when compared to the second quarter of 2018, while operating income was $613 million, a decrease of $56 million, or 8%. Lower pricing and higher maintenance expense in stimulation services in the United States land sector negatively impacted results. That was partially offset by increased completion tool sales and well intervention services in the Eastern Hemisphere and higher stimulation activity in Mexico.

Drilling and Evaluation

Drilling and Evaluation revenue in the third quarter of 2018 was $2.0 billion, essentially flat when compared to the second quarter of 2018, while operating income was $181 million, a decrease of $10 million, or 5%. Declines in drilling fluids activity in North America were partially offset by increased drilling-related services in Latin America.