Halliburton Sees Record North American Results in First-Quarter 2012 as Oil Drilling Widens, Natural Gas Weakens

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Researched by Industrial Info Resources (Sugar Land, Texas)--Energy services provider Halliburton Company (NYSE:HAL) (Houston, Texas) reported solid companywide growth in the first quarter of 2012 as North American results hit records, with revenue and operating income growing about 40% and 45%, respectively. Net income for the quarter was reported to be $627 million, a 22.7% increase from first-quarter 2011.

Total revenues for the quarter stood at $6.87 billion, a 30.03% increase from the same period last year. Stronger demand for pressure-pumping in the U.S. land market, as well as wireline and perforating services in the U.S. and Canada, proved to be a significant boost to North American revenues, while an improved deepwater performance in Brazil led Halliburton's continued growth in the Latin American region. The company saw positive results in major markets that were negatively affected in 2011, despite numerous setbacks, including an estimated $300 million loss related to the 2010 Deepwater Horizon disaster in the Gulf of Mexico; a $46 million after-tax charge related largely to the turmoil in Libya; a slight decline in North American operating margins; and a 17% decline in the North American natural gas rig count.

Among the projects that are being tracked in Industrial Info's International Oil & Gas Production Project Database is the $50 billion, Phase I development of the West Qurna Oil Field in Iraq, on which Halliburton is serving as a contractor. The project involves boosting output by drilling approximately 1,500 new wells to reach a plateau target of 8.7 billion barrels per day. ExxonMobil Iraq Services Limited (Dubai, United Arab Emirates), South Oil Company (Basrah, Iraq) and Shell Overseas Services Limited (Riyadh, Saudi Arabia) are serving as managers on the project, which is expected to be completed in January 2014.

Halliburton executives noted that oil rigs represented 64% of the total U.S. rig count during the quarter, which is the highest level in almost 25 years.

"In the U.S., the natural gas rig count declined 150 rigs, or 19%, just since the beginning of the year," said Dave Lesar, the president and chief executive officer of Halliburton, in a conference call. "That slightly outpaced the oil-directed rig count increase of 125 rigs, or 10% over the same period. So while the total rig count only declined 1%, the shift from natural gas to oil was dramatic and disruptive to operations."

All of the company's major regional segments reported higher revenues and operating income when compared with first-quarter 2011, and all but one saw double-digit percentage gains:

• Completion and Production reported first-quarter revenues of $4.29 billion, a 35.25% increase from the same period last year, and an operating income of $1.04 billion, compared with $660 million in first-quarter 2011:
• The North American region saw revenues of $3.18 billion, a 43.27% increase from first-quarter 2011, and operating income of $871 million, a 41.86% increase.
• The Latin American region saw revenues of $306 million, a 27.5% increase from the same period last year, and operating income of $55 million, a 52.78% increase.
• The European, African and former Soviet region saw revenues of $456 million, a 13.72% increase from first-quarter 2011, and operating income of $57 million, compared with an operating loss of $26 million in the same period last year.
• The Middle Eastern and Asian region saw revenues of $346 million, an 11.61% increase from first-quarter 2011, and operating income of $53 million, a 47.22% increase.
• Drilling and Evaluation reported first-quarter revenues of $2.58 billion, a 22.18% increase from the same period last year, and an operating income of $368 million, a 60% increase.
• The North American region saw revenues of $986 million, a 29.57% increase from first-quarter 2011, and an operating income of $190 million, a 61.02% increase.
• The Latin American region saw revenues of $474 million, a 27.42% increase from the same period last year, and an operating income of $67 million, a 67.5% increase.
• The European, African and former Soviet region saw revenues of $556 million, a 9.02% increase from the same period last year, and an operating income of $40 million, compared with $22 million in first-quarter 2011.
• The Middle Eastern and Asian region saw revenues of $562 million, a 20.34% increase from the same period last year, and an operating income of $71 million, a 42% increase.

Still, Halliburton executives are wary of the sharp decline in natural gas prices, citing "significant disruptions to the company's supply chain and overall efficiency" in the first quarter that were related to a drop in natural gas activity, according to a press release. They expect further natural gas rig dislocations to have a detrimental effect on the second quarter, as well as more cost inflation, further pricing pressure, and the annual slowdown in Canadian activity during the spring thaw.

"With spot natural gas prices down approximately 50% from this time last year due to the resiliency of natural gas production and a very mild winter, we expect to see further declines in the natural gas rig count, until we begin to see a meaningful decrease in production levels," Lesar said in the conference call. "Over time, we believe any future weakness in natural gas rig count will be offset by an increase in oil and liquids-rich activity, resulting in an overall yearly percentage increase in the U.S. rig count in the mid-single digits."

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