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Halliburton Reports First Quarter 2020 Results; Revenue Comparison

Share Print Bookmark    |    Monday,April 20,2020

Halliburton Company reported its Q1 2020 results.

In its conference call, the company said: "Right now, North American E&P CapEx is trending towards a 50% reduction year-on-year in 2020. We expect activity in North America land to further deteriorate during the second quarter and remain depressed through year-end impacting all basins. [We are] no longer chasing market share."

Comparison: Quarterly Revenue by Area

• North America Revenues: Halliburton's North America revenue is up 9% from Q4 2019 and down 24% YOY (vs. Q1 2019)

• International Revenues: Halliburton's International revenue is down 10% from Q4 2019 and flat YOY (vs. Q1 2019)

Financials & Commentary

Halliburton announced today a net loss of $1.0 billion, or $1.16 per diluted share, for the first quarter of 2020.

This compares to net income for the first quarter of 2019 of $152 million, or $0.17 per diluted share. Adjusted net income for the first quarter of 2020, excluding impairments and other charges and a loss on the early extinguishment of debt, was $270 million, or $0.31 per diluted share. This compares to adjusted net income for the first quarter of 2019, excluding impairments and other charges, of $201 million, or $0.23 per diluted share. Halliburton's total revenue in the first quarter of 2020 was $5.0 billion, a 12% decrease from revenue of $5.7 billion in the first quarter of 2019. Reported operating loss was $571 million in the first quarter of 2020 compared to reported operating income of $365 million in the first quarter of 2019. Excluding impairments and other charges, adjusted operating income was $502 million in the first quarter of 2020, an 18% increase from adjusted operating income of $426 million in the first quarter of 2019.

Chairman, President & CEO Jeff Miller said: “As the world is battling the COVID-19 pandemic, I thank our employees for their dedication and focus during these difficult times. The health and safety of our employees and their families is extremely important to me. We are monitoring the situation closely and following our own guidelines, as well as those from the Centers for Disease Control and Prevention (CDC), the World Health Organization (WHO) and state and local governments. On our customers’ work sites and within our facilities, Halliburton people are getting the job done, while taking the appropriate steps to protect themselves and others.

“Halliburton executed well in the first quarter. Total company revenue for the first quarter was $5.0 billion, a 12% decrease year over year, and adjusted operating income of $502 million increased 18% year on year. Both our divisions delivered strong margin performance in the first quarter. Our first quarter results demonstrate that the Halliburton team is well prepared to adjust and deliver under any market conditions.

“Our industry is facing the dual shock of a massive drop in global oil demand coupled with a resulting oversupply. Consequently, we expect activity in North America land to sharply decline during the second quarter and remain depressed through year-end, impacting all basins. Internationally, we believe the activity changes will not be uniform across all markets. OPEC+ production decisions and the duration of pandemic-related demand and activity disruptions will ultimately determine the extent of international spending declines this year.

“We have been through downturns before. We know what to do and will execute based on that experience. We are taking swift actions to reduce overhead and other costs by approximately $1 billion, lower capital expenditures to $800 million, and improve working capital. We will take further actions as necessary to adjust to evolving market conditions.

“We believe the actions we take will not only temper the impact of the activity declines on our financial performance, but also ensure that we are in a strong position, financially and structurally, to take advantage of the market’s eventual recovery,” concluded Miller.

Operating Segments

Completion and Production

Completion and Production revenue in the first quarter of 2020 was $3.0 billion, a decrease of $700 million, or 19%, when compared to the first quarter of 2019, while operating income was $345 million, a decrease of $23 million, or 6%. These results were primarily due to lower pressure pumping activity and pricing and reduced completion tool sales in North America, partially offset by increased cementing activity and completion tool sales in the Eastern Hemisphere.

Drilling and Evaluation

Drilling and Evaluation revenue in the first quarter of 2020 was $2.1 billion, which was flat from the first quarter of 2019, while operating income was $217 million, an increase of $94 million, or 76%. Higher activity for drilling-related services in the North Sea and Asia more than offset reduced activity and pricing for multiple product service lines in North America land and lower fluids activity in Latin America.

Geographic Regions

North America

North America revenue in the first quarter of 2020 was $2.5 billion, a 25% decrease when compared to the first quarter of 2019. This decline was mainly due to reduced activity and pricing in North America land, primarily associated with pressure pumping, well construction, and completion tool sales. This decline was partially offset by increased artificial lift activity and specialty chemicals sales in North America land, and stimulation activity in the Gulf of Mexico.

International

International revenue in the first quarter of 2020 was $2.6 billion, a 5% increase when compared to the first quarter of 2019, primarily driven by increased well construction activity in the North Sea and Russia, coupled with higher activity across multiple product lines in the United Arab Emirates, Mexico, Indonesia and Malaysia. These improvements were partially offset by a decline in stimulation and fluids activity in Latin America and lower activity in Ghana.

Latin America revenue in the first quarter of 2020 was $516 million, a 12% decrease year over year, resulting primarily from reduced fluids activity and stimulation services across the region, particularly in Argentina, coupled with decreased activity in multiple product service lines in Brazil, Ecuador and Colombia. These declines were partially offset by increased activity across multiple product service lines in Mexico and Guyana.

Europe/Africa/CIS revenue in the first quarter of 2020 was $831 million, an 11% increase year over year, resulting primarily from increased drilling-related activity in the North Sea, improved well construction activity in Russia, and increased completions activity in Algeria, partially offset by reduced activity in multiple product service lines in Ghana.

Middle East/Asia revenue in the first quarter of 2020 was $1.2 billion, a 9% increase year over year, largely resulting from increased activity in the majority of product service lines in the United Arab Emirates, Indonesia, and Malaysia, partially offset by lower project management activity in India.

Other Financial Items

Halliburton recognized $1.1 billion of pre-tax impairments and other charges to further adjust its cost structure to current market conditions. These charges consisted primarily of non-cash asset impairments, mostly associated with pressure pumping equipment, as well as severance and other costs. In addition, based on the current market environment and its expected impact to Halliburton’s business outlook, the Company recognized a non-cash tax expense of approximately $310 million as a result of an adjustment to its deferred tax assets.

During the first quarter of 2020, Halliburton executed two transactions to reduce total debt by $500 million and extend certain maturities out to 2030. The Company issued $1.0 billion aggregate principal amount of 2.92% senior notes due March 2030. Using these proceeds and cash on hand, Halliburton redeemed $1.5 billion of debt, which consisted of $500 million of 3.50% senior notes due August 2023 and $1.0 billion of 3.80% senior notes due November 2025. This early debt redemption resulted in a $168 million loss on extinguishment, which included a redemption premium, unamortized discounts and costs on the retired notes, and other redemption fees. This first quarter charge was included in "Loss on early extinguishment of debt" on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2020.

Selective Technology & Highlights

• Halliburton was awarded seven contracts for drilling and completion services for the next phase of field development of the INPEX-operated Ichthys Project in the Browse Basin offshore northern Australia. The well development campaign is expected to continue for an estimated 3-year term.

• Halliburton announced SPIDRlive^TM Self-Powered Intelligent Data Retriever, an unconventional well testing and fracture interaction monitoring technology that acquires real-time well data without the need for intervention to reduce costs and improve fracture understanding for greater recovery.

• Pertamina, the largest Indonesian oil and gas company, deployed all of their petro-technical applications on the iEnergy® cloud, a hybrid cloud offering from Landmark, a Halliburton business line, which manages operators' E&P applications. The iEnergy® cloud helps reduce corporate infrastructure costs and improve the effectiveness and efficiency of integrating, managing and supporting well data across the company's units and subsidiaries. The multiyear contract will deploy capabilities including artificial intelligence, machine learning and data analytics to solve upstream challenges and support Pertamina's digital transformation initiatives.

• Halliburton Landmark presented a multimillion-dollar educational software grant to King Abdulaziz University in Saudi Arabia to train and prepare the next generation of Saudi oil and gas engineers and geoscientists. The three-year license provides students and faculty with access to Landmark's DecisionSpace® enterprise software platform including seismic processing, geophysics and geosciences, drilling and production and data management.

• Halliburton released NitroForce^TM, a new drilling motor that provides increased power and performance to complete longer laterals faster and with greater control. The motor delivers high reliability helping operators reduce potential motor failure and increase drilling speed to save well time and costs.

COVID-19 Pandemic and Market Conditions Update

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. Oil demand has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. In the midst of the ongoing COVID-19 pandemic, the Organization of Petroleum Exporting Countries and other oil producing nations (OPEC+) were unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production. The convergence of these events created the unprecedented dual impact of a global oil demand decline coupled with the risk of a substantial increase in supply. While OPEC+ agreed in April to cut production, downward pressure on commodity prices has remained and could continue for the foreseeable future.

These events have negatively affected and are expected to continue to negatively affect Halliburton’s business. Demand for the Company’s products and services is declining as its customers revise their capital budgets downwards and adjust their operations in response to lower oil prices. In addition, Halliburton is facing logistical challenges, including border closures, travel restrictions and an inability to commute to certain facilities and job sites, as the Company provides services and products to its customers. The Company is also experiencing inefficiencies surrounding stay-at-home orders and remote work arrangements.

Given the dynamic nature of these events, Halliburton cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist, the extent of the impact they will have on the Company’s business, liquidity, consolidated results of operations and consolidated financial condition, or the pace of any subsequent recovery. The financial results for the first quarter of 2020 reflect some of the reduced activity experienced towards the latter part of the quarter in various locations around the world. For the remainder of 2020, the Company expects a further decline in revenue and profitability, particularly in North America.