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Halliburton Q1 results: Income up 160m USD with a 300m USD Contigency for Macondo

Halliburton  announced today that income from continuing operations for the first quarter of 2012 was $826 million, or $0.89 per diluted share, excluding $300 million ($191 million, after-tax, or $0.20 per diluted share), for an estimated loss contingency related to the Macondo well incident. Income from continuing operations for the first quarter of 2011 was $558 million, or $0.61 per diluted share, excluding a charge of $46 million, after-tax, or $0.05 per diluted share, related primarily to reserving certain assets as a result of political sanctions in Libya.

Reported income from continuing operations for the first quarter of 2012 was $635 million, or $0.69 per diluted share, compared to $512 million, or $0.56 per diluted share, for the first quarter of 2011. Reported net income attributable to company for the first quarter of 2012 was $627 million, or $0.68 per diluted share, compared to $511 million, or $0.56 per diluted share for the first quarter of 2011.

Halliburton’s consolidated revenue in the first quarter of 2012 was $6.9 billion, compared to $5.3 billion in the first quarter of 2011. Total operating income was $1.0 billion in the first quarter of 2012, compared to $814 million in the first quarter of 2011. All regions and nearly all product service lines experienced double-digit percentage revenue and operating income growth from the first quarter of 2011.

The $300 million Macondo-related charge represents the amount of probable losses related to the incident that can reasonably be estimated at this time, and may be adjusted in the future as new information and developments become known.

“I am very pleased with our first quarter results, with revenue growth of 30% compared to the first quarter of 2011,” commented Dave Lesar, chairman, president and chief executive officer.

“Despite the 17% decline in the United States natural gas rig count and a modest decline in overall United States rig count, our North America revenue increased from the prior quarter to a new record with only a modest decline in operating margins. Our international operations continue to show good progress, with major markets that negatively affected our results in 2011 all showing signs of improvement. We continue to pursue our goals of superior growth, margins, and returns and our first quarter results are evidence of our success.

“In North America, revenue and operating income grew by 40% and 45%, respectively, compared to the first quarter of 2011. This impressive growth was made possible by our strategic investments over the last several years combined with our world-class supply chain organization.

“The steady increase in unconventional oil-directed activity continued in the first quarter, with a 12% increase in the United States oil-directed rig count nearly offsetting the 17% decline in natural gas-directed rig count. Oil rigs represented 64% of the total United States rig count in the first quarter of 2012, up from 56% in the fourth quarter of 2011, and this represents the highest level in nearly 25 years.

“While the strength in the oil and liquids-rich basins has been supportive, the decline in natural gas prices and related natural gas-directed activity in the first quarter caused significant disruptions to our supply chain and our overall efficiency. In addition, increasing cost inflation on certain scarce materials and pricing pressure due to excess service equipment capacity in certain basins negatively affected our margins. We expect the transient impact of some additional natural gas rig dislocation, further cost inflation, continued pricing pressure, and the impact of spring breakup in Canada to negatively impact our North America margins by 200 to 250 basis points in the second quarter of 2012.

“In Latin America, first quarter revenue increased by 27% and operating income increased by 61% compared to the same period in the prior year. Brazil was the largest contributor to this increase, exhibiting clear proof of our success in executing our deepwater strategy. Growth in the Andean countries was another driver of our improved results.

“Eastern Hemisphere revenue was up 14% and margins increased from the first quarter of 2011 driven by improvements in markets that negatively impacted our results in 2011. Our operating margin in Iraq improved substantially from the prior quarter and the first quarter of 2011. In addition, our margins in the United Kingdom and East Africa were above our international operating margin for the first quarter of 2012. As the international pricing environment has remained competitive, we continue to address our cost structure and introduce new technologies to improve our financial results.

“The global demand for energy remains robust as does the portfolio of technically complex projects underway to meet this need. We expect to continue to utilize our broad technology portfolio and growing global footprint to meet our customer requirements. While we have made great progress in executing our strategies in recent years, we plan to continue investing in our technology, our people, and our expanding global footprint to help our customers meet their goals,” concluded Lesar.

2012 First Quarter Results

Completion and Production

Completion and Production (C&P) revenue in the first quarter of 2012 was $4.3 billion, an increase of $1.1 billion, or 35%, from the first quarter of 2011. Increased demand for pressure-pumping services in the United States land market and the addition of Multi-Chem accounted for the majority of this increase.

C&P operating income in the first quarter of 2012 was $1.0 billion, an increase of $376 million, or 57%, over the first quarter of 2011. Excluding the impact of the first quarter of 2011 charge for Libya, C&P operating income improved $340 million from the prior year first quarter. North America C&P operating income increased $257 million, or 42%, from the first quarter of 2011, driven primarily by increased demand for production enhancement and cementing services. Latin America C&P operating income increased $19 million, or 53%, compared to the first quarter of 2011 due to higher activity levels in Mexico and increased demand for cementing services and completion tools sales in Brazil. Excluding the first quarter of 2011 charge for Libya, Europe/Africa/CIS C&P operating income improved as a result of the resumption of activities in North Africa and increased demand in Nigeria. Middle East/Asia C&P operating income increased $17 million, or 47%, compared to the first quarter of 2011 due to higher cementing margins in Oman and increased activity levels in Indonesia and Iraq, which more than offset lower completion tools sales in Malaysia and less demand for production enhancement services in Asia.

Drilling and Evaluation

Drilling and Evaluation (D&E) revenue in the first quarter of 2012 was $2.6 billion, an increase of $468 million, or 22%, from the first quarter of 2011, primarily due to higher drilling activity and strong demand for wireline and perforating services.

D&E operating income in the first quarter of 2012 was $368 million, an increase of $138 million, or 60%, from the first quarter of 2011. Excluding the impact of the first quarter of 2011 charge for Libya, D&E operating income improved $115 million from the prior year first quarter. North America D&E operating income increased $72 million, or 61%, from the first quarter of 2011, driven by increased demand for fluids and wireline and perforating services. Latin America D&E operating income increased $27 million, or 68%, from the first quarter of 2011 primarily due to higher activity levels in Brazil, which more than offset higher costs in Mexico. Excluding the first quarter of 2011 charge for Libya, Europe/Africa/CIS D&E operating income decreased from the first quarter of 2011 as a result of higher costs and severe weather-related seasonality in Norway, which were partially offset by improved activity levels in North Africa and increased demand for drilling services in the United Kingdom. Middle East/Asia D&E operating income increased $21 million, or 42%, from the first quarter of 2011 primarily due to increased demand for fluids in Saudi Arabia and higher wireline services activity in the Middle East.

Corporate and Other

During the first quarter of 2012, Halliburton invested an additional $23 million in strategic projects aimed at strengthening Halliburton’s North America service delivery model and repositioning technology, supply chain, and manufacturing infrastructure to support projected international growth. Halliburton expects to continue funding this effort for the remainder of 2012.

Significant Recent Events and Achievements

— Halliburton and PETRONAS Carigali Sdn Bhd (PETRONAS Carigali) signed a Framework Agreement for the evaluation and development of global shale resources. This collaboration is expected to enable PETRONAS Carigali to shorten its in-house capability development by leveraging on Halliburton’s technology and experience in the North America shale industry. Halliburton plans to work with PETRONAS Carigali to set up a Shale Technical Centre of Excellence in Kuala Lumpur.

— Halliburton announced its new aqueous-based version of the SandWedge(R) conductivity enhancement system. Halliburton’s continuous research focused on achieving highly conductive fractures resulted in this technology advancement, which provides health, safety and environmental (HSE) and operational benefits for primary and remedial fracture treatments. The new version delivers all the benefits of Halliburton’s proprietary conductivity enhancement technology and adds improved HSE performance with more operational efficiency, versatility, and reliability. The aqueous-based system also enables important applications in remedial treatments.

— Halliburton debuted a free smartphone application called eRedBook(R) Mobile. This mobile application brings one of the most widely used mathematical tools in the oil and natural gas industry to two of the most popular technology platforms in history. Today, this free smartphone application is available for Apple and Android devices in both the Apple iTunes store and Google Play. It currently provides pumping and displacement volumes and API standards for tubing/casing dimensions and strengths. This marks the latest major advancement for this important engineering resource since Halliburton’s RedBook reference tool was created more than 80 years ago.

— Fortune magazine named Halliburton to its annual “World’s Most Admired Companies” list for 2012 and rated Halliburton fourth in the world for the “Oil and Gas Equipment, Services” sector. Companies are evaluated based on innovation, people management, social responsibility, and global competitiveness, among other attributes. The rankings are based on a survey of about 15,000 senior executives, outside directors, and industry analysts.

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