Halliburton Sees Profits Tumble from Weak Market in Second-Quarter 2015, Cuts Full-Year Capex to $2.6 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Halliburton Corporation (NYSE:HAL) (Houston, Texas), a major supplier of products and services to the upstream Oil & Gas Industry, sustained a sharp drop in profits in second-quarter 2015 amid a decline in activity across North American product lines, spurred largely by weaker commodity prices, and costs associated with the company's pending acquisition of Baker Hughes Incorporated (NYSE:BHI) (Houston). Net income for the quarter was reported to be $54 million, compared with $774 million in second-quarter 2014.

Industrial Info is tracking more than $6 billion in active projects involving Halliburton, including the $450 million construction of natural gas storage caverns in Northwich, England. The project involves building a compressor station, which will feature two engine-driven compressor packages, and 10 leach caverns to store a total of 100 million cubic meters of natural gas. AMEC (London) is performing the engineering, procurement and construction. The project, which kicked off in March 2012, is expected to be completed in first-quarter 2016.

Total revenues stood at $5.92 billion, a 26.48% decrease from the same period last year. The biggest blow came from North America, where reduced activity levels and pricing adjustments for stimulation services only worsened the ongoing effects of low commodity prices. The company also saw weaker activity in Mexico and the Middle East/Asia region. Still, software sales improved in Latin America and the Eastern Hemisphere, and the Europe/Africa/former-Soviet region reported stronger activity in Norway, Algeria and Angola.

The company also opened its new Indonesian headquarters in Jakarta.

Among the exceptional costs Halliburton recorded during the quarter were those for the pending acquisition of Baker Hughes, which rose from $35 million in the previous quarter to $67 million in the second quarter.

Capital expenditures for the quarter were reported to be $1.22 billion, compared with $1.38 billion in second-quarter 2014.

"Revenue for North America was down 25% sequentially, significantly outperforming the 40% decline in the average rig count," said Dave Lesar, the chairman and chief executive officer of Halliburton, in a conference call. "And while the North American rig count declined 40%, our stage count declined less than 10%. Therefore, we believe that a customer flight to quality emerged during the quarter. And this gives us reason to believe that pricing declines may begin to decelerate." He continued: "We are not expecting a meaningful activity increase until sometime in 2016, depending on the pace of production declines and where commodity prices settle out in the coming quarters. Therefore, what we are continuing to do is manage our cost, service our customers that are engaged in this flight to quality, and prepare for the Baker transaction."

As part of the regulatory review of the Baker Hughes acquisition, Halliburton announced in April a decision to market for sale several of its businesses: Fixed Cutter and Roller Cone Drill Bits; Directional Drilling; and Logging-While-Drilling/Measurement-While-Drilling. Lesar said that Halliburton expects to complete the auction sometime this fall, during the expected closing of the entire transaction.

Citing the continued decline in activity levels, Halliburton executives said they would cut the company's capital expenditure outlook for full-year 2015 by another $200 million to $2.6 billion.

"So now that the rig count appears to be scraping along a bottom, what happens next? The exact timing's difficult to predict, but the previous cycles would point us to the following progression of how the story should play out as we move forward," said Jeffrey A. Miller, the president, director & chief health, safety and environment officer, in the conference call. "First, activity stabilizing means the healing process can begin with respect to pricing and margins. This will then allow our input cost savings to catch up, and our efficiency programs and well solutions can begin driving margins up. Price improvement will then be a challenge until we see capacity tightening in the market. Therefore, any margin improvement will likely be the result of lowering our cost base."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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.