Halliburton Finds Success Abroad in 2012 as Seasonal U.S. Decline Takes Toll

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Researched by Industrial Info Resources (Sugar Land, Texas)--Energy services provider Halliburton Company (NYSE:HAL) (Houston, Texas) reported strong overall results for fourth-quarter and full-year 2012, as the company reported record full-year revenues in each of its geographic divisions and both of its major segments, while the fourth quarter saw the highest quarterly revenue in Halliburton's history. Although a strong international performance offset seasonal declines in North America, a series of costs and charges weighed on earnings. Net income was reported to be $669 million for the quarter, a 26.16% decrease from fourth-quarter 2011, and $2.64 billion for the year, a 7.19% decrease from 2011.

Total revenues stood at $7.29 billion for the quarter, 3.2% increase from the same period in the previous year, and $28.5 billion for the full year, a 14.8% increase from 2011. Halliburton performed strongest abroad: the Latin American market saw stronger demand for drilling fluids service; the Middle East/Asia market saw stronger service demand in Saudi Arabia and Australia; and the European, African and former Soviet market saw greater demand for drilling services in the North Sea and Russia. Mexico, Colombia and much of the Middle East/Asia market benefited from higher software sales.

Both the Completion & Production and Drilling & Evaluation segments reported weaker activity in the U.S. land market, as rig counts declined 5% and high guar gum costs, which initially were incurred in the second quarter, continued to eat away at the company's bottom line. For more information, see July 24, 2012, article - Guar Gum Purchases Prove Sticky Business as Halliburton Posts Record Second-Quarter 2012 Revenue. The U.S. market also saw strong pricing pressure for production enhancement services, particularly for hydraulic fracturing ("fracking") contracts. Halliburton also incurred a $300 million charge for an estimated loss contingency related to the April 2010 Deepwater Horizon drilling rig explosion in the Gulf of Mexico. However, much of the U.S. decline in the fourth quarter was seasonal.

Capital expenditures for the year stood at $3.57 billion, a 20.76% increase from spending in 2011.

Industrial Info is tracking more than $51 billion in active projects involving Halliburton, including the $450 million construction of natural gas storage caverns at the Middlewich Gas Storage Facility in London, England. The project involves building a compressor station with two engine-driven compressor packages, and leaching 10 caverns to store a total of 100 million cubic meters of natural gas. The project is expected to be completed before the end of August 2015.

"As the industry leader in unconventional development, this year we elevated our service offerings with the start of the roll log of our 'Frac to the Future' initiative," said Dave Lesar, the chairman, president and chief executive officer of Halliburton, in a conference call. "This provides the most efficient and effective hydraulic fracturing delivery system available in the industry today. Globally, 2012 was a watershed year for the expansion of unconventionals. In addition to providing services on several of the first commercial unconventional wells in Australia and China, we expanded our service footprint in key markets, such as Saudi Arabia, Mexico and Argentina."

For the fourth quarter and the full year, North America was the only geographic segment to report declines in revenue or operating income for either segment:

• Completion & Production reported fourth-quarter revenues of $4.34 billion, basically unchanged from fourth-quarter 2011, and an operating income of $603 million, a decrease of 44.53% from the same period in 2011. For the full-year, revenues stood at $17.38 billion, a 14.77% increase from 2011, and operating income stood at $3.14 billion, a 15.78% decrease:
• The North American region saw revenues of $2.83 billion in the fourth quarter, a 10.1% decrease from the same period in the previous year, and an operating income of $315 million, compared with $940 million in fourth-quarter 2011. For the full-year, revenues stood at $12.16 billion, an 11.46% increase from 2011, and operating income stood at $2.26 billion, a 32.36% decrease.
• The Latin American region saw revenues of $396 million in the fourth quarter, a 26.92% increase from the same period in the previous year, and an operating income of $57 million, an 11.76% increase from fourth-quarter 2011. For the full-year, revenues stood at $1.42 billion, a 26.68% increase from 2011, and operating income stood at $206 million, a 29.56% increase.
• The European, African and former Soviet region saw revenues of $569 million in the fourth quarter, a 14.49% increase from fourth-quarter 2011, and operating income of $107 million, compared with $44 million in the same period in the previous year. For the full-year, revenues stood at $2.1 billion, a 20.22% increase from 2011, and operating income stood at $347 million, compared with $48 million.
• The Middle Eastern and Asian region saw revenues of $542 million in the fourth quarter, a 46.09% increase from fourth-quarter 2011, and an operating income of $124 million, compared with $52 million in the same period in the previous year. For the full-year, revenues stood at $1.71 billion, a 24.47% increase from 2011, and operating income stood at $331 million, compared with $185 million.
• Drilling & Evaluation reported fourth-quarter revenues of $2.95 billion, a 7.93% increase from fourth-quarter 2011, and an operating income of $484 million, an increase of less than 1%. For the full-year, revenues stood at $11.12 billion, a 14.84% increase from 2011, and operating income stood at $1.68 billion, a 19.39% increase:
• The North American region saw revenues of $923 million, a 4.05% decrease from the same period in the previous year, and an operating income of $150 million, a 15.73% decrease. For the full-year, revenues stood at $3.85 billion, a 9.73% increase from 2011, and operating income stood at $680 million, a 6.08% increase.
• The Latin American region saw revenues of $687 million, a 21.59% increase from fourth-quarter 2011, and an operating income of $136 million, a 14.29% increase. For the full-year, revenues stood at $2.28 billion, a 22.79% increase from 2011, and operating income stood at $393 million, a 28.85% increase.
• The European, African and former Soviet region saw revenues of $645 million, a 9.69% increase from the same period last year, and an operating income of $79 million, a 21.54% increase. For the full-year, revenues stood at $2.41 billion, a 9.1% increase from 2011, and operating income stood at $246 million, a 28.8% increase.
• The Middle Eastern and Asian region saw revenues of $698 million, a 12.4% increase from fourth-quarter 2011, and an operating income of $119 million, an increase of less than 1%. For the full-year, revenues stood at $2.59 billion, a 22.85% increase from 2011, and operating income stood at $356 million, a 33.83% increase.

Lesar said the company is already seeing activity improve in 2013 and expects it to continue, but noted that the strong seasonal decline in the fourth quarter likely means full North American recovery will not be seen until the second or third quarter. Among the top priorities for the company is to recover from the dramatically high guar gum costs faced throughout much of 2012. Although they expect the U.S. rig count to improve from its current status, they believe it will remain lower on the whole than in 2012.

"We are expecting continued pricing pressure as we renew our last tranche of stimulation contracts," Lesar said in the conference call. "Many of our competitors are operating at break-even or loss positions, which should set a floor on stimulation pricing. However, an improvement in pricing will require a meaningful decrease in excess capacity."

For more information, visit Industrial Info's Oil and Gas Production Project Database.

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