Halliburton Company (NYSE:HAL) announced results for the second quarter of 2016.
“Our second quarter results showed resilience in the face of another challenging quarter marked by lower activity levels and continued pricing pressure around the globe,” said Dave Lesar, Chairman and CEO.
“North America revenue declined 15% sequentially, significantly outperforming the average US rig count, which was down 23%. After falling 78% from the November 2014 peak, the US rig count reached a landing point during the second quarter, as we predicted during our last earnings call. Since reaching the bottom, the rig count has improved by 26 over the last several weeks, reflecting operator confidence in stabilizing commodity prices.
“In Latin America, revenue declined 12% sequentially, relative to a rig count decrease of 18% from the first quarter average. Looking at our major countries, rig activity in both Brazil and Mexico is at 20-year lows, while Venezuela continues to experience significant political and economic turmoil.
“Moving to the Eastern Hemisphere, we are still seeing modest headwinds around pricing and activity, but we have been successful in winning market share during the downturn. Our second quarter revenue was down 1% sequentially, relative to an average rig count that was down 4%. Middle East/Asia revenue declined 3% from the first quarter, due to lower activity levels in Iraq, Australia, and Indonesia. InEurope/Africa/CIS, revenue increased 2% sequentially, primarily due to a seasonal recovery of activity in the North Sea and Russia.
“Our activity outlook has not changed and our strategy is working. During the coming recovery, we plan to scale up our integrated delivery platform by addressing our product line building blocks one at a time through a combination of organic growth and selective acquisitions. We will continue to deliver our services to the highest service quality standards and provide technology to increase efficiency in the field.
“We believe the North America market has turned. We expect to see a modest uptick in rig count during the second half of the year. With our growth in market share during the downturn, we believe we are best-positioned to benefit from any recovery, including a modest one. Internationally, we are maintaining our service footprint, managing costs and continuing to gain market share.
“As we prepare for the upcycle, our approach to the market remains unchanged. We remain focused on consistent execution, generating superior financial performance, and providing industry-leading shareholder returns,” concluded Lesar.
North America revenue in the second quarter of 2016 was $1.5 billion, a 15% decrease sequentially, relative to a 23% decline in average U.S. rig count. Additionally, an operating loss of $124 million was recognized in the region. This decline was driven by reduced activity throughout the United States land sector, particularly pressure pumping services and drilling activity.
International revenue in the second quarter of 2016 was $2.3 billion, a 4% decrease sequentially, driven primarily by a decline in pressure pumping and logging services. International second quarter operating income was $246 million, which decreased$64 million, or 21%, sequentially, driven by lower pressure pumping, logging and subsea services.
Latin America revenue in the second quarter of 2016 was $476 million, a 12% decrease sequentially, with operating income of $22 million, a 54% decrease sequentially. These declines were a result of reduced activity in Brazil, Mexico andColombia, and Halliburton’s decision to curtail activity in Venezuela.
Europe/Africa/CIS revenue in the second quarter of 2016 was $795 million, a 2% increase sequentially, with operating income of $64 million, a 12% increase sequentially. The increase for the quarter was primarily driven by seasonal recovery of activity in the North Sea and Russia.
Middle East/Asia revenue in the second quarter of 2016 was $1.0 billion, a 3% decline sequentially, with operating income of $160 million, a 22% decrease sequentially. This was primarily the result of significant reductions in activity and pricing throughout the Asia Pacific markets as well as pricing concessions in theMiddle East.
Completion and Production
Completion and Production (C&P) revenue in the second quarter of 2016 was $2.1 billion, a decrease of $210 million, or 9%, from the first quarter of 2016, due to a decline in activity and pricing in most product services lines, particularly North America pressure pumping services which drove the majority of the C&P revenue decline. International revenue also declined as a result of reduced pressure pumping services, which were partially offset by increased completion tool sales in Nigeriaand pipeline services in the North Sea.
C&P operating loss in the second quarter was $32 million, which decreased $62 million from the first quarter of 2016, with decreased profitability as a result of global activity and pricing reductions, primarily in North America for pressure pumping services.
Drilling and Evaluation
Drilling and Evaluation (D&E) revenue in the second quarter of 2016 was $1.7 billion, a decrease of $153 million, or 8%, from the first quarter of 2016. Revenue declines were seen across a majority of product lines due to the historically low rig count, lower pricing, and customer budget constraints worldwide. Logging, drilling and offshore activity drove the declines, which were partially offset by an increase in fluid services in the North Sea.
D&E second quarter operating income was $154 million, which decreased $87 million, or 36%, compared to the first quarter of 2016, driven by a decline in activity and pricing across North America and Middle East/Asia, particularly drilling and logging activity in the United States. Second quarter results were also impacted by approximately $40 million of depreciation expense from assets previously classified as held for sale.
Corporate and Other Events
In conjunction with the termination of its merger agreement with Baker Hughesduring the second quarter of 2016, Halliburton paid a $3.5 billion termination fee which was recognized during the quarter. In addition, Halliburton mandatorily redeemed $2.5 billion of senior notes during the second quarter of 2016, resulting in$41 million, pre-tax, of redemption fees and associated costs. Halliburton also recorded company-wide impairments and other charges in the second quarter of 2016 of approximately $423 million, pre-tax, related primarily to severance costs and asset impairments as the company continued to right-size its cost structure. Also included in this number was a fair market value adjustment, required by accounting rules, related to a financing agreement Halliburton executed with its primary customer in Venezuela, resulting in an exchange of $200 million of outstanding trade receivables for an interest-bearing promissory note. Halliburton recorded the note at its fair market value at the date of exchange, resulting in a $148 million pre-tax loss during the second quarter.
The tax impact of all of these adjustments includes the impact of Halliburton’s decision that it may not permanently reinvest its foreign earnings, as well as the inability to utilize certain tax deductions resulting from the carryback of net operating losses to prior tax periods.
The aggregate impact of these second quarter items is $3.1 billion, after-tax, or $3.59per diluted share.
Selective Technology & Highlights
- Halliburton worked with Eclipse Resources Corporation to complete hydraulic fracturing of the extended reach lateral test well known as “Purple Hayes.” The Utica Shale well had a lateral length of over 18,500 feet and was completed with 124 frac stages in 24 days. The total depth was 27,046 feet, including the lateral extension which Eclipse believes is the longest horizontal onshore lateral ever drilled in the United States. The fracturing operations performed by Halliburtonutilized the company’s industry-leading Q10™ pumps equipped with dual fuel technology, which performed with zero down time. In addition, SandCastle® PS-2500 units equipped with Halliburton Dust Control systems provided superior sand loading logistics while reducing the environmental footprint on site. The efficiencies achieved with this equipment allowed Eclipse to improve its daily completion rate by 20 percent over the original plan, lowering their ultimate cost per BOE.
- Halliburton expanded its iEnergy™ collaboration portal, the industry’s foremost E&P community. iEnergy provides secure proprietary workspaces for Halliburton’s customers, utilizing the DecisionSpace platform to analyze their geophysical data and manage their projects in a seamless end-to-end environment. iEnergy™ brings together Halliburton and a broad range of partners to deliver a unique experience in which operators can work with the data and technology they need in integrated workflows, collaborate in discussion and project forums, contribute to the knowledge of the community as a whole, learn from the wealth of on-line training options and secure value for their business.
- Halliburton announced that its BaraLogix™ Density and Rheology Unit (DRU) received the Offshore Technology Conference 2016 Spotlight on New Technology Award. The BaraLogix™ DRU breaks down barriers by delivering a single piece of equipment that can autonomously measure fluid density and rheology during drilling operations, providing advanced data analysis in real time. The frequent and accurate data collection helps identify trends in fluid properties that are unavailable with current resources. As a result, BaraLogix™ helps operators make proactive decisions that reduce non-productive time, optimize drilling programs and save costs. (Original Source)
Shares of Halliburton closed yesterday at $44.99, down $0.62 or -1.36%. HAL has a 1-year high of $46.69 and a 1-year low of $27.64. The stock’s 50-day moving average is $44.36 and its 200-day moving average is $37.63.
On the ratings front, Halliburton has been the subject of a number of recent research reports. In a report released yesterday, Societe Generale analyst Edward Muztafago downgraded HAL to Hold, with a price target of $46, which represents a slight upside potential from current levels. Separately, on July 13, Citigroup’s Scott Gruber maintained a Buy rating on the stock and has a price target of $52.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Edward Muztafago and Scott Gruber have a total average return of 1.6% and 8.3% respectively. Muztafago has a success rate of 35.3% and is ranked #1888 out of 4057 analysts, while Gruber has a success rate of 71.4% and is ranked #446.
The street is mostly Bullish on HAL stock. Out of 20 analysts who cover the stock, 15 suggest a Buy rating and 5 recommend to Hold the stock. The 12-month average price target assigned to the stock is $51.60, which represents a potential upside of 14.7% from where the stock is currently trading.
Halliburton Co. provides services and products to the energy industry related to the exploration, development, and production of oil and natural gas. The company operates through two segments: Completion & Production and Drilling & Evaluation. The Completion & Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion services. This segment consists of production enhancement, cementing, completion tools, boots & coots, multi-chem and artificial lift. The Drilling & Evaluation segment provides field and reservoir modeling, drilling, evaluation, and wellbore placement solutions that enable customers to model, measure, and optimize their well construction activities. This segment consists of Halliburton drill bits and services, wireline and perforating, testing and subsea, baroid, sperry drilling, landmark software and services, and consulting and project management.