Company Update (NYSE:HAL): Halliburton Company Announces Fourth Quarter 2016 Results


Halliburton Company (NYSE:HAL) announced a loss from continuing operations of $149 million, or $0.17 per diluted share, for the fourth quarter of 2016. Adjusted income from continuing operations for the fourth quarter of 2016, excluding impairments and other charges and a class action lawsuit settlement, was $35 million, or $0.04 per diluted share. This compares to income from continuing operations for the third quarter of 2016 of $6 million, or $0.01 per diluted share. Halliburton’s total revenue in the fourth quarter of 2016 was $4.0 billion, which increased 5% from revenue of $3.8 billion in the third quarter of 2016. Reported operating income for the fourth quarter of 2016 was $53 million. Adjusted operating income for the fourth quarter of 2016 was $276 million, compared to operating income of $128 million for the third quarter of 2016, which did not include any impairments or other charges.

Total revenue for the full year of 2016 was $15.9 billion, a decrease of $7.7 billion, or 33%, from 2015. Reported operating loss for 2016 was $6.8 billion, compared to reported operating loss of $165 million for 2015. Excluding special items, adjusted operating income for 2016 was $690 million, compared to adjusted operating income of $2.3 billion for 2015. Both revenue and operating results declined due to the impact of lower commodity prices creating widespread pricing pressure and activity reductions on a global basis.

Commenting on 2016 results, Dave Lesar, Chairman and CEO said, “Despite the turbulent year for the energy industry, I am very pleased with our 2016 results. They show that we have executed in a challenging market.

“Guided by the lessons learned from past industry cycles, our strategy focused not only on managing costs but also on aligning our resources to strengthen our market position. We were able to reinforce the long-term health of our global business and position the company for growth as the market improves.

“For the fourth quarter, our total company revenue increased 5% sequentially, and our adjusted operating income doubled. We also generated over a billion dollars in cash flow from operations during the fourth quarter, demonstrating our attention to efficient working capital management.

“I am pleased to announce that we returned to operating profitability in North Americathis quarter, and achieved 65% incremental margins.

“We gained significant market share through the downturn, and as the market stabilized we leveraged this share to drive margin improvement. This market share improvement continued in the fourth quarter as we outgrew our primary competitor in North America, Latin America and the Eastern Hemisphere.

“Despite the positive sentiment surrounding the North American land market, it is important to remember that our world is still a tale of two cycles. The North Americamarket appears to have rounded the corner, but the international downward cycle is still playing out.

“In the international markets, low commodity prices have stressed budgets and have impacted economics across deepwater and mature field markets, which led to decreased activity and pricing throughout 2016. Despite these headwinds, we maintained our margin in the Eastern Hemisphere for the fourth quarter. We do not expect to see an inflection in the international markets until the latter half of 2017.

“2016 was a year of transition, and as we move into 2017 our focus will be on driving industry leading returns. We will continue to maintain our financial flexibility, leverage our strong balance sheet to invest in our broad service portfolio and strengthen our long term market position,” concluded Lesar.

Geographic Regions

North America

North America revenue in the fourth quarter of 2016 was $1.8 billion, a 9% increase sequentially, relative to a 23% increase in average U.S. rig count. Operating results improved by $94 million, from a loss of $66 million in the third quarter to income of $28 million in the fourth quarter, driven primarily by increased pricing and utilization throughout the United States land sector and effective cost management.

International

International revenue in the fourth quarter of 2016 was $2.2 billion, a 2% increase sequentially, driven primarily by improved activity in Production Enhancement, Landmark, and Consulting and Project Management. International fourth quarter operating income was $305 million, a 27% increase compared to the third quarter. Operating results improved due to software sales and increased onshore activity, as well as continued expense reductions.

Latin America revenue in the fourth quarter of 2016 was $428 million, a 3% increase sequentially, with operating income of $30 million, a $19 million increase sequentially. These increases were largely a result of increased activity in Colombia and Argentina and year-end software sales in Mexico and Venezuela.

Europe/Africa/CIS revenue in the fourth quarter of 2016 was $676 million, a 9% decrease sequentially, with operating income of $72 million, a 5% decrease sequentially, primarily driven by weather-related reduced activity in the North Sea and Russia. These decreases were partially offset by improved activity in Nigeria and Egypt.

Middle East/Asia revenue in the fourth quarter of 2016 was $1.1 billion, a 10% increase sequentially, with operating income of $203 million, a 32% increase sequentially. These increases were driven primarily by increased completion tools sales and project management services across the region.

Operating Segments

Completion and Production

Completion and Production revenue in the fourth quarter of 2016 was $2.3 billion, an increase of $92 million, or 4%, from the third quarter of 2016, while operating income was $85 million, a $61 million improvement, primarily due to improved pressure pumping pricing and utilization in the United States land market and higher completion tools sales in the Gulf of Mexico. International revenue declined as a result of seasonality of pipeline and process services across most regions, reduced cementing activity in Eurasia and fewer completion tools sales in Europe/Africa/CIS.

Drilling and Evaluation

Drilling and Evaluation revenue in the fourth quarter of 2016 was $1.8 billion, an increase of $96 million, or 6%, from the third quarter of 2016, while operating income increased 64% to $248 million. These improvements were driven by year-end software sales, improved drilling activity in U.S. land, increased Consulting and Project Management activity in Sub Saharan Africa and the Middle East, and improved Testing and Subsea activity internationally.

Corporate and Other

In December 2016, Halliburton reached an agreement in principle to settle the Erica P. John Fund class action lawsuit that has been pending for over 14 years and which asserted claims in connection with accounting for long-term construction projects and asbestos liability disclosures. As a result, Halliburton incurred a charge of $54 millionduring the fourth quarter, which is included in Corporate and other.

During the fourth quarter of 2016, Halliburton incurred approximately $92 million of foreign currency exchange losses that were included in the company’s $0.04adjusted income from continuing operations per diluted share. The single largest loss was a $53 million, or $0.06 per share, non-tax deductible impact from the devaluation of the Egyptian pound.

Selective Technology & Highlights

  • Halliburton won three World Oil Awards in 2016. Quasar Trio™ Service won “Best Drilling Technology”, Integrated Sensor Diagnostics Service won “Best Production Technology” and DES DrillingXpert™ Software won “Best Visualization & Collaboration.” In addition, Halliburton finished as a finalist in seven other categories, reinforcing the company as a top innovator in the upstream industry.
  • Halliburton’s customized BaraECD® system successfully helped drill the longest salt dome section in a Mexico deepwater project. The solution included the application of the high-performance BaraECD® system in conjunction with Halliburton’s Drilling Fluids Graphics software to optimize drilling parameters. The cross-product line collaboration resulted in five days of reduced drilling time with significant operator cost savings.
  • Halliburton’s Completion Tools business line recently acquired Darcy Technologies, Ltd (Darcy), a company specializing in downhole sand-control technology. Darcy is known for its unique hydraulically actuated Endurance Hydraulic Screen®, which greatly simplifies sand-control completion in hydrocarbon wells. Its inclusion in the Halliburton portfolio will bring additional value to customers and strengthen the company’s position as the market leader in completions and sand control.
  • Halliburton collaborated with a customer in the Gulf of Mexico to use its Dash® Large Bore Electrohydraulic (EH) Subsea Safety System which minimized both real time operational risk and costs. This marked the first commercial use of the Dash® Large Bore EH Subsea Safety System. Dash® proved to be a huge success for both Halliburton and the customer as operating costs were reduced through efficient job preparation and operational efficiencies.
  • Halliburton recently invested in a joint venture with Raptor Rig Limited. Through this entity, Halliburton will gain access to proprietary dual automated drilling rig and coil tubing rig intellectual property, allowing Halliburton’s Consulting & Project Management product line to provide rig services for integrated contracts as well as other third-party rig contracts.
  • Halliburton has been recognized by Shell as an outstanding business partner. The company won the 2016 Global Partner Award after winning the Wells Quality Equipment Award in 2015 and the Performance Improvement Award in 2014. This demonstrates Halliburton’s commitment towards collaborating with its customers to maximize production at the lowest cost per barrel of oil equivalent. (Original Source)

Shares of Halliburton closed last Friday at $56.45, up $1.11 or 2.01%. HAL has a 1-year high of $56.98 and a 1-year low of $27.96. The stock’s 50-day moving average is $54.76 and its 200-day moving average is $47.62.

On the ratings front, HAL has been the subject of a number of recent research reports. In a report issued on January 12, BMO analyst Daniel Boyd reiterated a Buy rating on HAL, with a price target of $67, which implies an upside of 19% from current levels. Separately, on January 9, FBR’s Tom Curran reiterated a Buy rating on the stock and has a price target of $69.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Daniel Boyd and Tom Curran have a yearly average return of 1.1% and 3.8% respectively. Boyd has a success rate of 53% and is ranked #2139 out of 4361 analysts, while Curran has a success rate of 56% and is ranked #1188.

Sentiment on the street is mostly bullish on HAL stock. Out of 7 analysts who cover the stock, 7 suggest a Buy rating . The 12-month average price target assigned to the stock is $67.00, which implies an upside of 19% from current levels.

Halliburton Co. engages in the provision of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. The company operates through the Completion and Production; and Drilling and Evaluation business segment. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion services. The Drilling and 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.