Reschedules earnings call to Tuesday, May 3,
2016
Halliburton (NYSE: HAL) announced today that, due to the
upcoming April 30, 2016, deadline in its merger agreement with
Baker Hughes, the conference call scheduled for Monday, April 25,
2016, to discuss the first quarter 2016 financial results is
postponed until Tuesday, May 3, 2016. As previously announced,
Halliburton and Baker Hughes agreed to extend the time period under
the merger agreement to obtain regulatory approvals to no later
than April 30, 2016, after which the parties may continue to seek
relevant regulatory approvals or either of the parties may
terminate the merger agreement.
Total company revenue of $4.2 billion for the first quarter of
2016 represents a 17% decline sequentially, compared to a 21%
decline in the worldwide rig count. Disruptive market conditions
persisted in the first quarter, as U.S. rig counts reached a record
low and the worldwide rig count is at the lowest level since
1999.
“Life has changed in the energy industry, especially in North
America, and over the past several quarters we have taken the steps
to adapt to that fact,” said Dave Lesar, Chairman and CEO.
“Operators globally are under immense pressure, and many of our
North America customers are fighting to maintain some value for
their shareholders. Our goal is to work with those customers to get
through these tough times.
“Our customers have taken defensive actions to solidify their
finances including significant reductions to headcount and capital
spend. While these were necessary actions, it clearly will result
in production declines in the back half of 2016. But even when
operators feel better about the markets, they will still face
issues of balance sheet repair and we believe they will be cautious
in adding rigs back. As activity levels recover, we believe there
will be a structural shift to lowering cost per barrel of oil
equivalent, through more collaborative business models with service
providers, more aggressive application of our industry-leading
technologies, and less duplicative costs,” added Lesar.
North America
“In North America, the industry experienced another tough
quarter with the average U.S. rig count down 27% sequentially. By
comparison, our revenue was down 17%, outperforming our peer group,
and our completions activity was only down single digits
sequentially, demonstrating our clients’ continued flight to
quality. What we are experiencing today is far beyond headwinds; it
is unsustainable. My definition of an unsustainable market is one
where all service companies are losing money in North America,
which is where we are now. However, our margins have continued to
show resilience despite the aggressive activity and pricing
declines we have seen since the peak, with decremental margins of
only 22% for the quarter,” said Jeff Miller, President.
“From the peak in the fourth quarter of 2014, the U.S. rig count
has declined almost 80%, setting a new record low. By comparison,
our North America revenue is down 62% over the same period, again
outperforming our peers, and operating income has only now slipped
to a quarterly loss position. The second quarter average land rig
count is already down more than 20% sequentially, and setting new
record lows every week. Nevertheless, we believe we will see the
landing point for the U.S. rig count during the second quarter.
Once we see stability in the rig count, our cost cutting measures
will start to catch up. Previous downturns indicate that there is
typically at least a one quarter lag after the rig count flattens
before we see our margins begin to improve.
“Our technology is squarely directed towards reducing cost per
barrel of oil equivalent and continued client uptake validates our
approach. We continue to work with the key customers that have the
best acreage and are willing to work with us in a collaborative
way. In some cases today, this may mean doing work at a loss, but
our intention is to deepen our collaborative relationship with
these strategic customers through this market, and when the
recovery comes we believe these operators – and therefore
Halliburton – will be best-positioned for the upside.
International
“The international markets continue to hold up better than North
America, but they are certainly not immune to the macro
challenges,” continued Miller. “At current commodity prices, many
of our customers’ international projects are not economical. We
believe much work remains to realize the value that can be achieved
through collaboration. This conversation takes many forms,
including eliminating redundant activities that do not add value,
finding productive but not excessive solutions, and improving well
designs to help make more barrels.
“We are pleased with the tone of these recent discussions, as
they play to Halliburton’s strengths. Our ability to reduce cost
helps us win and retain work, and our service quality has continued
to improve in the face of a distracting market. We have improved
our service quality by 36% over the last five years, as measured by
reduction of down time, and our safety metrics have improved
consistently over the last few years. When it comes to customers
awarding work, price is always a factor, but in any pricing
environment, better service quality actually results in the lowest
cost solution. Although the pipeline of opportunities is
substantially smaller in this market, we continue to win our share
of new international work across the globe.”
Restructuring
“There is no doubt this is one of the most challenging markets
the industry has ever experienced, as we face a more than 30%
decline in global drilling and completion spend for the second
straight year. Further, we expect to see an additional 50% decline
in North America spend in 2016, following last year’s 40% decline.
Given this outlook, we took a rational, hard-nosed look at our
business, from three perspectives: what our customers are doing,
what our competitors are doing, and what we can do. Here’s what we
concluded:
“Many customers are struggling to survive and maintain some
value for their investors. They are doing this by cutting their
capital costs, drilling their best acreage, pushing service pricing
down, stretching payment terms, and radically restructuring their
balance sheets through debt to equity conversions or dilutive
equity deals.
“A large number of competitors, especially in North America, are
rebasing their cost structures downward, in many cases by
converting their debt to equity, and underinvesting in areas such
as maintenance and technology, while continuing to price service
work at less than cost.
“At Halliburton, we revisited every cost from manufacturing to
delivery logistics to field operations. This included looking hard
at capital equipment needs, required headcount and service delivery
infrastructure.
“It was easy to conclude after this assessment that the industry
is grossly overcapitalized, especially in North America. To reflect
our current estimate of market requirements, we took a $2.1 billion
after-tax restructuring charge in the first quarter related
primarily to asset write-offs and severance costs.
Capital Equipment
“There is excess service capacity across all of our product
lines, with the largest single component relating to our North
America pressure pumping business.
“Over the last four years we have been systematically converting
our pressure pumping fleet in North America to the Frac of the
Future design. Our Q10 system is operating more efficiently and
better than expected; even when compared to our prior generation of
industry-leading horsepower, the difference is dramatic. The
reality of today’s market is that operational reliability is the
name of the game, as it leads to lower cost per barrel. The Q10
system is the most reliable in the market today, contributing
greatly to the flight to quality by our customers. While some of
our older equipment is actually better than what our competition
has now, it is not better than the Q10 and there is simply no need
for it in this market. Therefore, we have impaired a large portion
of our older, non-Q10 pumping equipment.
“It is important to note that we did generate outstanding
returns for our shareholders over the lifespan of this equipment.
Even after the impairment we took this quarter, the average return
on this equipment was approximately 20 percent, which is
significantly higher than our cost of capital and we believe is
best-in-class among our peer group. Depending on the age and
condition of this equipment, it has either been permanently removed
from the fleet, or it has been cold-stacked. When market conditions
improve, we have multiple levers we can pull, including
accelerating the manufacturing and deployment of additional Q10
units.
Headcount
“Responding to the reality of the market, we force-fit our
employee headcount to available activity levels. This provides
sustainable structural savings without compromising our ability to
add personnel to serve the market when it recovers. This included
consolidating management roles across countries and centralizing
support functions. This resulted in a workforce reduction of more
than 6,000 during the first quarter. Since the downturn began in
late 2014, we have reduced our global headcount by approximately
one-third.
Service Infrastructure
“By the end of the first quarter, we had closed, or are
currently in the process of closing, over one hundred different
service points worldwide. These closures ranged from elimination of
underutilized stock points to the consolidation of individual
service centers.
“In addition, our view of the fundamental changes to the market
has led us to take action and reduce the infrastructure that had
been maintained in anticipation of the pending Baker Hughes
acquisition. We are not making any decisions that would permanently
impair our logistical infrastructure, or ability to flex back up,
but we see no scenario in the current market where we need this
additional infrastructure. We have demonstrated in the past that we
have the ability to react quickly in a recovery and expand the
business while maintaining higher incremental margins than our
competitors.
“In summary, the actions during the first quarter were difficult
decisions, but were the right thing to do for the health of the
business, and to help mitigate the market reckoning facing our
industry. We believe these actions present an opportunity for us to
slingshot out of the recovery, with higher incremental margins than
we have typically seen in other cycles.
“We believe our focus on execution and technology geared to
deliver the lowest cost per barrel will allow our customers to make
better wells and allow Halliburton to outperform our peers. And we
continue to believe that the longer it takes the recovery to occur,
the sharper it will be, that North America will offer the greatest
upside, and that Halliburton will be positioned to outperform,”
concluded Lesar.
Geographic Regions
North America
North America revenue in the first quarter of 2016 was $1.8
billion, a 17% decrease sequentially, relative to a 27% decline in
average U.S. rig count. We had an operating loss of $39 million.
These declines were driven by reduced activity throughout the
United States land sector, particularly pressure pumping services,
along with a decrease in completion tools sales in the Gulf of
Mexico. Across the major North America basins, we are seeing
continued uptake of our AccessFracTM system to help our customers
maximize reservoir contact, including starting a new program with a
major customer in the Duvernay formation in Canada.
International
International revenue in the first quarter of 2016 was $2.4
billion, an 18% decrease sequentially, driven primarily by
decreased activity across the majority of our product service
lines, specifically pressure pumping services, completion tools
sales and drilling services. International first quarter operating
income was $310 million, which decreased $192 million, or 38%,
sequentially, driven by lower completion tools and software
sales.
Latin America revenue in the first quarter of 2016 was $541
million, a 22% decrease sequentially, with operating income of $48
million, a 51% decrease sequentially. These declines were a result
of reduced activity in Mexico, Brazil and Colombia. In addition,
during the quarter we made the decision to begin curtailing
activity in Venezuela. From a product line perspective, Baroid,
Cementing and Landmark experienced the largest sequential declines
in both revenue and operating income. During the quarter, we
saw a continued expansion of unconventional technology into Latin
America, including the Illusion® Frac Plug and our FracInsight®
software in Argentina, as well as the first deployment of our
DecisionSpace® 3D Asset Management Center in Ecuador.
Europe/Africa/CIS revenue in the first quarter of 2016 was $778
million, a 19% decline sequentially, with operating income of $57
million, a 54% decrease sequentially. The decline for the quarter
was primarily driven by a sharp reduction of activity in the North
Sea due to seasonal weather-related activity declines, along with
lower completion tools sales and drilling activity in Angola and
Nigeria. We saw increased uptake of our customized chemistry
solutions in the North Sea throughout the first quarter, including
our Baroid BaraECD® drilling fluid system and both iCem® and
WellLife® cementing software, which helped our customer
successfully pump a critical phase of their well.
Middle East/Asia revenue in the first quarter of 2016 was $1.1
billion, a 15% decline sequentially, with operating income of $205
million, a 27% decrease sequentially. This was primarily the
result of significant reductions in activity and pricing throughout
the Asia Pacific markets. Middle East operations declined modestly
as a result of ongoing pricing concessions. We continued to provide
solutions to our customers in the mature fields segments of Middle
East/Asia. First, we deployed our recently released SpectrumSM
Diagnostic Services with production logging for a major NOC
customer. We also delivered WellLock® resin solutions to multiple
customers in the Middle East, remediating a well and providing a
secondary barrier where standard cement could not reach.
Operating Segments
Completion and Production
Completion and Production (C&P) revenue in the first quarter
of 2016 was $2.3 billion, a decrease of $507 million, or 18%, from
the fourth quarter of 2015, due to a decline in activity and
pricing in most of our product services lines, particularly North
America pressure pumping services which drove the majority of the
C&P revenue decline. International revenue also declined as a
result of reductions in activity in all regions coupled with lower
pricing in Angola, Australia, and the North Sea.
C&P operating income in the first quarter was $30 million,
which decreased $114 million, or 79%, compared to the fourth
quarter of 2015, with decreased profitability across all regions as
a result of global activity and pricing reductions, primarily in
North America pressure pumping services.
Drilling and Evaluation
Drilling and Evaluation (D&E) revenue in the first quarter
of 2016 was $1.9 billion, a decrease of $377 million, or 17%, from
the fourth quarter of 2015. Reductions were seen across all product
lines due to the historically low rig count, lower pricing, and
customer budget constraints worldwide.
D&E first quarter operating income was $241 million, which
decreased $158 million, or 40%, compared to the fourth quarter of
2015, driven by a decline in activity and pricing across all
regions, particularly drilling activity, logging activity and
software sales in the United States, Mexico and China.
Management Change
“Kelly Youngblood, Halliburton’s Vice President of Investor
Relations, has elected to take a CFO position at another company. I
thank him for his 27 years with Halliburton, and wish him well. We
are pleased to welcome Lance Loeffler to the role of Vice
President, Investor Relations, effective immediately. Lance has
served as Halliburton’s Vice President of Corporate Development
since 2014,” said Lesar.
Selective Technology &
Highlights
- Halliburton’s Testing and Subsea
business announced it had released the DashTM 3 inch Subsea Safety
System to provide electrohydraulic control of Halliburton’s subsea
safety tree. Previously, control was provided through direct
hydraulic pressure from the surface, but the Dash system helps
increase reliability and provide more cost-efficient operations by
applying the speed of electrohydraulic actuation to core safety
functions. The system fully integrates with Halliburton’s
RezConnectTM Well Testing System. The design was recently deployed
on a deepwater well in Latin America in over 7,500 feet of water,
where it demonstrated a six second downhole safety shut-in followed
by an eight second surface shut-in and disconnect.
- Halliburton's Production Solutions
business announced it had introduced SpectrumSM Real-Time Coiled
Tubing Services that help improve well intervention operations and
production by integrating coiled tubing with downhole measurement
tools, fiber optic sensing and telemetry. The new family of
services consists of Spectrum Diagnostic Services and Spectrum
Intervention Services. Spectrum Diagnostic Services uses
fiber-optic distributed sensing to assess reservoir performance and
completions effectiveness by simultaneously monitoring a time
series of data, as opposed to taking single snapshots in time.
Applications for Spectrum Diagnostic Services include determining
stimulation cluster efficiency, fracture mapping, production
profiling, leak detection, and assessing wellbore integrity.
Spectrum Intervention Services uses fiber optics to provide
subsurface and downhole insight from a bottom-hole assembly. The
services have multiple applications in unconventional fields, deep
water and mature fields, including milling, wellbore cleanouts,
fishing, perforating, and stimulation.
- Halliburton successfully installed
China's first intelligent completion in Bohai Bay. The completion
provided four zones of selective injection, which enabled the
customer to get real-time pressure and temperature data for the
reservoir and optimize the injection strategy accordingly. In the
Bohai Bay mature fields, pressure maintenance is critical, and up
until now injection could not be controlled and directed into the
individual zones from the surface. The cost for conventional
intervention methods can be high and if one zone has an issue,
trying to troubleshoot the problem zone can be difficult and can
add to the cost. Intelligent wells now give the operator “eyes and
ears” to be able to detect issues in real time and respond quickly
if issues occur. Additionally, it is possible to provide pinpoint
water injection to the best zones to ensure the optimization
strategy for the customer is met — all with zero intervention.
- Halliburton recently performed a
customized, multistage fracturing and fines migration control
solution on an IGAPO well in Ecuador. The procedure resulted in
recovery of more than 450 barrels of oil per day, completed in only
70% of the usual time required for conventional fracture jobs.
Halliburton designed and executed an unconventional, multistage
SurgiFrac® service that combined the ceramic proppant coated with
the SandWedge® conductivity enhancement system for three fracturing
stages. Included in the design of the solution was the CW-FracSM
service for the first stage, which was producing at an estimated 60
percent water cut. The treatment was effective and three fractures
were completed with no operational issues. It was the first
multistage fracturing service, the first application of Pinpoint
and conductivity endurance treatments, and the first well
completion of this complexity in Ecuador.
About Halliburton
Founded in 1919, Halliburton is one of the world's largest
providers of products and services to the energy industry. With
over 55,000 employees, representing 140 nationalities and
operations in approximately 70 countries, the company serves the
upstream oil and gas industry throughout the lifecycle of the
reservoir - from locating hydrocarbons and managing geological
data, to drilling and formation evaluation, well construction and
completion, and optimizing production through the life of the
field. Visit the company’s website at www.halliburton.com. Connect
with Halliburton
on Facebook, Twitter, LinkedIn, and
YouTube.
NOTE: The statements in this press release that are not
historical statements, including statements regarding future
financial performance and the pending Baker Hughes transaction, are
forward-looking statements within the meaning of the federal
securities laws. These statements are subject to numerous risks and
uncertainties, many of which are beyond the company's control,
which could cause actual results to differ materially from the
results expressed or implied by the statements. These risks and
uncertainties include, but are not limited to: with respect to the
Baker Hughes acquisition, the timing to consummate the proposed
transaction; the outcome of any litigation involving the DOJ; the
terms, timing and completion of divestitures undertaken to obtain
required regulatory approvals; the conditions to closing of the
proposed transaction may not be satisfied or the closing of the
proposed transaction otherwise does not occur; the risk a
regulatory approval that may be required for the proposed
transaction is not obtained or is obtained subject to conditions
that are not anticipated; the diversion of management time on
transaction-related issues; the ultimate timing, outcome and
results of integrating the operations of Halliburton and Baker
Hughes and the ultimate outcome of Halliburton’s operating
efficiencies applied to Baker Hughes’s products and services; the
effects of the business combination of Halliburton and Baker
Hughes, including the combined company’s future financial
condition, results of operations, strategy and plans; expected
synergies and other benefits from the proposed transaction and the
ability of Halliburton to realize such synergies and other
benefits; with respect to the Macondo well incident, final court
approval of, and the satisfaction of the conditions in,
Halliburton's September 2014 settlement, including the results of
any appeals of rulings in the multi-district litigation;
indemnification and insurance matters; with respect to repurchases
of Halliburton common stock, the continuation or suspension of the
repurchase program, the amount, the timing and the trading prices
of Halliburton common stock, and the availability and alternative
uses of cash; changes in the demand for or price of oil and/or
natural gas can be significantly impacted by weakness in the
worldwide economy; consequences of audits and investigations by
domestic and foreign government agencies and legislative bodies and
related publicity and potential adverse proceedings by such
agencies; protection of intellectual property rights and against
cyber attacks; compliance with environmental laws; changes in
government regulations and regulatory requirements, particularly
those related to offshore oil and natural gas exploration,
radioactive sources, explosives, chemicals, hydraulic fracturing
services, and climate-related initiatives; compliance with laws
related to income taxes and assumptions regarding the generation of
future taxable income; risks of international operations, including
risks relating to unsettled political conditions, war, the effects
of terrorism, foreign exchange rates and controls, international
trade and regulatory controls, and doing business with national oil
companies; weather-related issues, including the effects of
hurricanes and tropical storms; changes in capital spending by
customers; delays or failures by customers to make payments owed to
us; execution of long-term, fixed-price contracts; structural
changes in the oil and natural gas industry; maintaining a highly
skilled workforce; availability and cost of raw materials; and
integration and success of acquired businesses and operations of
joint ventures. Halliburton's Form 10-K for the year ended December
31, 2015, recent Current Reports on Form 8-K, and other Securities
and Exchange Commission filings discuss some of the important risk
factors identified that may affect Halliburton's business, results
of operations, and financial condition. Halliburton undertakes no
obligation to revise or update publicly any forward-looking
statements for any reason.
Additional Information
This communication does not constitute an offer to buy or sell
or the solicitation of an offer to buy or sell any securities or a
solicitation of any vote or approval. This communication relates to
a proposed business combination between Halliburton and Baker
Hughes. In connection with this proposed business combination,
Halliburton has filed with the Securities and Exchange Commission
(the “SEC”) a registration statement on Form S-4, including
Amendments No. 1 and 2 thereto, and a definitive joint proxy
statement/prospectus of Halliburton and Baker Hughes and other
documents related to the proposed transaction. The registration
statement was declared effective by the SEC on February 17, 2015
and the definitive proxy statement/prospectus has been mailed to
stockholders of Halliburton and Baker Hughes. INVESTORS AND
SECURITY HOLDERS OF HALLIBURTON AND BAKER HUGHES ARE URGED TO READ
THE JOINT PROXY STATEMENT/PROSPECTUS, REGISTRATION STATEMENT AND
OTHER DOCUMENTS FILED OR THAT MAY BE FILED WITH THE SEC CAREFULLY
AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN
IMPORTANT INFORMATION. Investors and security holders may obtain
free copies of these documents and other documents filed with the
SEC by Halliburton and/or Baker Hughes through the website
maintained by the SEC at http://www.sec.gov. Copies of the
documents filed with the SEC by Halliburton are available free of
charge on Halliburton’s internet website at
http://www.halliburton.com or by contacting Halliburton’s Investor
Relations Department by email at investors@Halliburton.com or by
phone at +1-281-871-2688. Copies of the documents filed with the
SEC by Baker Hughes are available free of charge on Baker Hughes’
internet website at http://www.bakerhughes.com or by contacting
Baker Hughes’ Investor Relations Department by email at
alondra.oteyza@bakerhughes.com or by phone at +1-713-439-8822.
Participants in
Solicitation
Halliburton, Baker Hughes, their respective directors and
certain of their respective executive officers may be considered
participants in the solicitation of proxies in connection with the
proposed transaction. Information about the directors and executive
officers of Halliburton is set forth in its Annual Report on Form
10-K for the year ended December 31, 2015, which was filed with the
SEC on February 5, 2016, and its proxy statement for its 2016
annual meeting of stockholders, which was filed with the SEC on
April 5, 2016. Information about the directors and executive
officers of Baker Hughes is set forth in its Annual Report on Form
10-K for the year ended December 31, 2015, which was filed with the
SEC on February 17, 2016, Amendment No. 1 to its Annual Report on
Form 10-K for the year ended December 31, 2015, which was filed
with the SEC on February 19, 2016, and its proxy statement for its
2016 annual meeting of stockholders, which was filed with the SEC
on April 11, 2016. These documents can be obtained free of charge
from the sources indicated above. Additional information regarding
the participants in the proxy solicitations and a description of
their direct and indirect interests, by security holdings or
otherwise, are contained in the proxy statement/prospectus and
other relevant materials filed with the SEC.
HALLIBURTON COMPANY
Revenue and Operating Income (Loss)
Comparison
By Operating Segment and Geographic
Region
(Millions of dollars)
(Unaudited)
Three Months Ended
March 31
December 31
Revenue 2016
2015 2015 By operating segment:
Completion and Production $ 2,324 $ 4,246 $ 2,831 Drilling and
Evaluation 1,874
2,804 2,251
Total revenue $ 4,198
$ 7,050
$ 5,082 By geographic
region: North America $ 1,794 $ 3,542 $ 2,155 Latin America 541 949
694 Europe/Africa/CIS 778 1,097 962 Middle East/Asia
1,085 1,462
1,271
Total revenue
$ 4,198
$ 7,050 $
5,082 Operating Income (Loss) By
operating segment: Completion and Production $ 30 $ 462 $ 144
Drilling and Evaluation 241
306
399 By geographic region: North America $ (39 ) $ 279
$ 41 Latin America 48 122 98 Europe/Africa/CIS 57 86 123 Middle
East/Asia 205
281 281
Other items: Corporate and other $ (46
) $ (69 ) $ (70 )
Conference Call
Details
Halliburton will host a conference call on Tuesday, May 3, 2016,
to discuss the first quarter 2016 financial results. The call will
begin at 8:00 AM Central Time (9:00 AM Eastern Time).
Please visit the website to listen to the call live via webcast.
Interested parties may also participate in the call by dialing
(888) 793-5581 within North America or (973) 935-8723 outside North
America. A passcode is not required. Attendees should log in to the
webcast or dial in approximately 15 minutes prior to the call’s
start time.
A replay of the conference call will be available on
Halliburton’s website for seven days following the call. Also, a
replay may be accessed by telephone at (888) 266-2081 within North
America or (703) 925-2533 outside of North America, using the
passcode 1670065.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160422006085/en/
HalliburtonFor Investors:Lance Loeffler,
281-871-2688Halliburton, Investor
RelationsInvestors@Halliburton.comorFor Media:Emily Mir,
281-871-2601Halliburton, Public RelationsPR@Halliburton.com
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