Halliburton Navigates Tough U.S. Land Market in Third-Quarter 2012, Expects Lower CapEx Next Year

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Energy services provider Halliburton Company (NYSE:HAL) (Houston, Texas) reported strong revenues but slightly weakened profits in the third quarter of 2012, as record quarterly revenues in the Latin American and Middle Eastern-Asian regions were partly negated by weakened activity and higher costs in the U.S. land market. Net income for the quarter was reported to be $602 million, an 11.86% decrease from third-quarter 2011.

Total revenue stood at $7.11 billion, an 8.6% increase from the same period last year. Although the Drilling and Evaluation segment posted a record third-quarter revenue, North American operating income was affected negatively by Hurricane Isaac, pricing pressure for hydraulic fracturing, and guar gum costs in the Production Enhancement business. For more information, see July 24, 2012, article - Guar Gum Purchases Prove Sticky Business as Halliburton Posts Record Second-Quarter 2012 Revenue.

Internationally, the company saw a much stronger unconventional activity in Latin America, as well as overall improvement in Russia, Malaysia and Australia. However, the European, African and former Soviet region saw revenue and operating income declines due to weaker activity in Europe and Algeria, as well as project delays in the North Sea.

Capital expenditures for the first nine months of the year were $2.52 billion, compared with $2.16 billion in the first nine months of 2011.

Halliburton announced two major acquisitions during the quarter. Petris Technology Incorporated, a leading data management and integrated solutions supplier, was acquired by Halliburton's Landmark Software and Services. Old School Services LLC, a provider of specialty coil tubing tools and services, was acquired by Halliburton's pressure control company Boots & Coots.

Industrial Info is tracking more than $51 billion in active projects involving Halliburton, including the $450 million construction of grassroot natural gas storage caverns at a gas storage facility owned by EDF Energy UK in London, England. The project involves building a compressor station with two engine-driven compressor packages and 10 leach caverns to store a total of 100 million cubic meters of natural gas. Halliburton is serving as a contractor.

"The U.S. rig count declined substantially by 68 rigs, or 4%, as operators continued to decrease their gas-directed activity," said Dave Lesar, the chairman, president and chief executive officer of Halliburton, in a conference call. "The oil-directed rig count was up 44, or 3% this quarter, as customers continued to shift their budgets toward basins with better economics. However, this increase was insufficient to offset the 18% reduction in gas rig count. In Canada, the rebound in rig activity from spring breakup was significantly less than industry expectations."

All of the company's major regional segments reported higher revenues and when compared with third-quarter 2011, and all but three saw gains in operating income:

• Completion and Production reported third-quarter revenues of $4.29 billion, a 6.66% increase from the same period last year, and an operating income of $591 million, compared with $1.07 billion in third-quarter 2011:
• The North American region saw revenues of $2.98 billion, a 0.95% increase from third-quarter 2011, and operating income of $383 million, compared with $960 million in the same period last year.
• The Latin American region saw revenues of $373 million, a 25.59% increase from third-quarter 2011, and operating income of $40 million, a 6.98% decrease.
• The European, African and former Soviet region saw revenues of $523 million, a 20.79% increase from the same period last year, and operating income of $88 million, compared with $15 million in third-quarter 2011.
• The Middle Eastern and Asian region saw revenues of $419 million, a 21.45% increase from the same period last year, and operating income of $80 million, a 60% increase.
• Drilling and Evaluation reported third-quarter revenues of $2.82 billion, an 11.69% increase from third-quarter 2011, and an operating income of $430 million, a 16.53% increase:
• The North American region saw revenues of $965 million, a 4.21% increase from the same period last year, and an operating income of $174 million, a 0.57% decrease.
• The Latin American region saw revenues of $579 million, a 13.75% increase from third-quarter 2011, and an operating income of $106 million, a 12.77% increase.
• The European, African and former Soviet region saw revenues of $605 million, an 8.42% increase from the same period last year, and an operating income of $63 million, a 23.53% increase.
• The Middle Eastern and Asian region saw revenues of $669 million, a 29.23% increase from third-quarter 2011, and an operating income of $87 million, compared with $49 million in the same period last year.

Halliburton executives expect stronger international margins as they increase activity in new and recently started projects. Lesar said that the company believes international expansion will come from four areas: volume increases from new projects; continued improvement in markets in which Halliburton is currently invested; new technology; and stronger pricing and cost recovery on some contracts.

"Across the North American market, we've seen customer curtail spending compared with the first half of the year, and we believe they will continue to decrease activity to operate within their capital budgets for the remainder of 2012," Lesar said in the conference call. "Couple this with expectations that our customers will take significantly more holiday downtime than prior years, and this could have an even more-than-normal negative impact on the rig count as we approach year-end."

He continued: "We remain focused on maintaining our leadership position in North America. Our stimulation fleet remains highly utilized today, as we negotiate fractured contract renewals, and we've been able to increase our percentage of 24-hour crews. Many of our competitors simply do not have the infrastructure in place to meaningfully grow their 24-hour operations. This provides us with a unique opportunity to maintain superior asset utilization."

For full-year 2012, capital expenditures are expected to be between $3.4 billion and $3.5 billion. For 2013, they are expected to be somewhat lower.

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

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.