Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
Organization
We are one of the world's largest providers of products and services to the energy industry. We help our customers maximize value 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 throughout the life of the asset. Activity levels within our operations are significantly impacted by spending on upstream exploration, development and production programs by major, national and independent oil and natural gas companies. We report our results under two segments, the Completion and Production segment and the Drilling and Evaluation segment:
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our Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Pipeline and Process Services, Multi-Chem and Artificial Lift.
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our Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation and precise wellbore placement solutions that enable customers to model, measure, drill and optimize their well construction activities. The segment consists of Baroid, Sperry Drilling, Wireline and Perforating, Drill Bits and Services, Landmark Software and Services, Testing and Subsea, and Consulting and Project Management.
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The business operations of our segments are organized around four primary geographic regions: North America, Latin America, Europe/Africa/CIS and Middle East/Asia. We have manufacturing operations in various locations, the most significant of which are located in the United States, Canada, Malaysia, Singapore and the United Kingdom. With approximately 60,000 employees, we operate in more than 80 countries around the world, and our corporate headquarters are in Houston, Texas.
Financial results
We continued to manage challenging market dynamics during the third quarter of 2019 as a divergence of the U.S. and international markets remained prevalent. We generated total company revenue of $5.6 billion during the third quarter of 2019, a 10% decrease as compared to the third quarter of 2018. Total company operating income was $536 million during the third quarter of 2019, compared to operating income of $716 million in the third quarter of 2018. Our Completion and Production segment revenue decreased 16% from the third quarter of 2018, primarily driven by lower activity and pricing for stimulation services in North America land, while our Drilling and Evaluation segment revenue increased 2% from the third quarter of 2018 with higher activity for drilling-related services in Europe/Africa/CIS more than offsetting lower project management and drilling activity in the Middle East. International activity growth is gaining momentum across multiple regions and both of our divisions are meaningfully contributing to our international growth. While our Drilling and Evaluation segment has traditionally had the most exposure to international markets, our Completion and Production segment revenue has grown 13% internationally for the first nine months of 2019 as compared to the first nine months of 2018.
In North America, the market for both drilling and completion services softened during the third quarter of 2019, impacting activity for the oilfield services industry. Additionally, pricing pressures continued as operators tried to lower overall costs in order to meet their cash flow objectives. As a result, our North America revenue decreased 21% in the third quarter of 2019, as compared to the third quarter of 2018, primarily associated with stimulation services in North America land. Customer spending in North America has decreased and is concentrated in the first half of the year. For the first time in ten years, the U.S. land rig count declined approximately 11% from the second to the third quarter, and while the third quarter historically has been the busiest in terms of hydraulic fracturing in the United States, stage counts declined in every month during the third quarter of 2019. We stacked more equipment during the third quarter than we did during the first six months of the year.
Revenue in our international markets increased 7% in the third quarter of 2019, as compared to the third quarter of 2018. We experienced revenue growth across all international regions, particularly in Europe, Asia and Australia, with strong activity growth in our Completion Tools and Cementing businesses. We also continued to experience unconventional activity growth in several international regions, with a significant uptick over the last couple of years in several Middle Eastern countries, Argentina and Australia. Additionally, our Production Enhancement business demonstrated strong international growth in the first nine months of 2019 as compared to the first nine months of 2018. We leveraged our experience in U.S. shales to provide a customized application of technology, logistics management and operational excellence to maximize asset value for our international customers.
Business outlook
Our industry is going through a transformation brought on by the shale revolution and the down-cycle from earlier this decade. The industry has removed substantial costs from the system and introduced significant efficiencies. Many of our customers in North America have shifted their strategy from production growth to operating within cash flow and generating returns. These customers are focused on maximizing production per every dollar of capital spending, and technology that can improve well productivity will be key to their success. While the North America and international markets continue to diverge, we believe we are well positioned in this dynamic market by executing on our value proposition of collaborating with our customers to engineer solutions that deliver the lowest cost per barrel.
In North America, we expect activity to further decline in the fourth quarter of 2019 across all basins in the land market given the reduction in customer spending that we see, which will impact both our business segments. These declines are attributed not only to holiday and potential weather impacts, but also to cash flow generation commitments by our customers, an oversupplied gas market, and concerns surrounding oil demand softness in 2020. We anticipate that the rig count and completions activity during the fourth quarter of 2019 will be lower than in the fourth quarter of 2018. Earlier this year we restructured our North America organization by removing several layers of management, which has changed our cost profile and increased our market responsiveness. In the fourth quarter, we plan to undertake further cost reductions by streamlining our operations and corporate functions. We will also continue deploying new technologies that lower our cost and improve margins.
Internationally, we expect activity improvement to continue at a steady pace. The offshore rig count increased 19% from the third quarter of 2018 to the third quarter of 2019, and a broader offshore recovery should add momentum to international growth going forward. Our pipeline of projects is strong and we are reallocating assets to the markets where we can earn the highest returns. We will continue to focus on the international mature fields market, and we are growing our Production Group business, which comprises artificial lift, specialty chemicals and well intervention solutions. All of these efforts provide us with a strong base to capitalize on the international recovery. As such, we expect more revenue and margin growth opportunities coming from mature international fields and shallow water international markets.
During the first nine months of 2019, we had $1.2 billion of capital expenditures, a decrease of 19% from the first nine months of 2018, as we adjusted to market conditions. These capital expenditures were predominantly in our Sperry Drilling, Production Enhancement, Wireline and Perforating, Artificial Lift, and Production Solutions product service lines. We expect our full year 2019 capital expenditures will be $1.6 billion, a 20% decrease from 2018, with the majority of the reduction coming from North America. The capital spend for this year in the U.S. is mostly directed towards increasing efficiency, reducing emissions and investing in new technologies. We intend to significantly reduce our capital expenditures again in 2020. We are monitoring the market dynamics in North America and will adjust our capital spending according to anticipated activity levels next year.
We intend to continue to strengthen our product service lines through a combination of organic growth, investment and selective acquisitions. We plan to continue executing the following strategies through the end of 2019:
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directing capital and resources that differentiate our service and product offerings into strategic markets around the world;
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collaborating with, and engineering solutions to maximize asset value for, our customers;
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leveraging our broad technology offerings to provide value to our customers and enable them to more efficiently drill and complete their wells;
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investing in technology that will help our customers reduce reservoir uncertainty, increase operational efficiency and improve well productivity;
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improving working capital and managing our balance sheet to maximize our financial flexibility;
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seeking additional ways to be one of the most cost-efficient service providers in the industry by optimizing costs, maintaining capital discipline and leveraging our scale and breadth of operations; and
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striving to achieve superior returns and cash flow generation for our shareholders.
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Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”
Financial markets, liquidity, and capital resources
We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. As of September 30, 2019, we had $1.6 billion of cash and equivalents and $3.5 billion of available committed bank credit under our revolving credit facility. We believe this provides us with sufficient liquidity to address the challenges and opportunities of the current market. For additional information on market conditions, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2019, we had $1.6 billion of cash and equivalents, compared to $2.0 billion of cash and equivalents at December 31, 2018.
Significant sources and uses of cash during the first nine months of 2019
Sources of cash:
- Cash flows from operating activities were $1.3 billion. This included a negative impact from the primary components of our working capital (receivables, inventories and accounts payable) of a net $656 million, primarily associated with reduced payables and a build-up of inventory related to our strategic technology deployments.
Uses of cash:
- Capital expenditures were $1.2 billion and were predominantly made in our Sperry Drilling, Production Enhancement, Wireline and Perforating, Artificial Lift, and Production Solutions product service lines.
- We paid $472 million in dividends to our shareholders.
- We repurchased approximately 4.5 million shares of our common stock under our share repurchase program at a total cost of $100 million.
Future sources and uses of cash
We manufacture most of our own equipment, which allows us flexibility to increase or decrease our capital expenditures based on market conditions. Capital spending for the full year 2019 is currently expected to be approximately $1.6 billion, a decrease of 20% from 2018, as we remain committed to maintaining capital discipline. We intend to significantly reduce our capital expenditures again in 2020. We are monitoring the market dynamics in North America and will adjust our capital spending according to anticipated activity levels next year.
Currently, our quarterly dividend rate is $0.18 per common share, or approximately $158 million. Subject to Board of Directors approval, our intention is to continue paying dividends at our current rate during 2019. Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.2 billion remained authorized for repurchases as of September 30, 2019 and may be used for open market and other share purchases.
Other factors affecting liquidity
Financial position in current market. As of September 30, 2019, we had $1.6 billion of cash and equivalents and $3.5 billion of available committed bank credit under our revolving credit facility. Furthermore, we have no financial covenants or material adverse change provisions in our bank agreements, and our debt maturities extend over a long period of time. We believe our cash on hand, cash flows generated from operations and our available credit facility will provide sufficient liquidity to address the challenges and opportunities of the current market and our global cash needs, including capital expenditures, working capital investments, dividends, if any, and contingent liabilities.
Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $2.1 billion of letters of credit, bank guarantees or surety bonds were outstanding as of September 30, 2019. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.
Credit ratings. Our credit ratings with Standard & Poor’s (S&P) remain A- for our long-term debt and A-2 for our short-term debt, with a negative outlook. Our credit ratings with Moody’s Investors Service (Moody's) remain Baa1 for our long-term debt and P-2 for our short-term debt, with a stable outlook.
Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets as well as unsettled political conditions. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations and consolidated financial condition.
BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS
We operate in more than 80 countries throughout the world to provide a comprehensive range of services and products to the energy industry. Our revenue is generated from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. The industry we serve is highly competitive with many substantial competitors in each segment of our business. During the first nine months of 2019, based upon the location of the services provided and products sold, 53% of our consolidated revenue was from the United States, compared to 59% of consolidated revenue from the United States in the first nine months of 2018. No other country accounted for more than 10% of our revenue.
Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, sanctions, expropriation or other governmental actions, inflation, changes in foreign currency exchange rates, foreign currency exchange restrictions and highly inflationary currencies, as well as other geopolitical factors. We believe the geographic diversification of our business activities reduces the risk that an interruption of operations in any one country, other than the United States, would be materially adverse to our consolidated results of operations.
Activity within our business segments is significantly impacted by spending on upstream exploration, development and production programs by our customers. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption.
Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices and our customers' expectations about future prices, global oil supply and demand, completions intensity, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling and completions activity. Additionally, many of our customers in North America have shifted their strategy from production growth to operating within cash flow and generating returns. Lower oil and natural gas prices usually translate into lower exploration and production budgets and lower rig count, while the opposite is usually true for higher oil and natural gas prices. Our financial performance is therefore significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.
The following table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:
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Three Months Ended
September 30
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Year Ended
December 31
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2019
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2018
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2018
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Oil price - WTI (1)
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$
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56.37
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$
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69.76
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$
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64.94
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Oil price - Brent (1)
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61.93
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75.22
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71.08
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Natural gas price - Henry Hub (2)
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2.38
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2.93
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3.17
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(1) Oil price measured in dollars per barrel
(2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu
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The historical average rig counts based on the weekly Baker Hughes rig count data were as follows:
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Three Months Ended
September 30
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Nine Months Ended
September 30
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2019
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2018
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2019
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2018
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U.S. Land
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894
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1,032
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961
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1,001
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U.S. Offshore
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26
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19
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23
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18
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Canada
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132
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209
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132
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195
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North America
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1,052
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1,260
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1,116
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1,214
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International
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1,144
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1,003
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1,094
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981
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Worldwide total
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2,196
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2,263
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2,210
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2,195
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Crude oil prices have been extremely volatile over the past five years. WTI oil spot prices declined significantly beginning in 2014 from a peak price of $108 per barrel in June 2014 to a low of $26 per barrel in February 2016, a level which had not been experienced since 2003. Since the low point experienced in early 2016, oil prices increased substantially, with WTI oil spot prices reaching a high of $77 per barrel in June 2018. In late 2018, oil prices again declined with WTI oil spot prices reaching a low of $44 per barrel in December, but rising to a high of $66 per barrel in April 2019 while averaging $56 per barrel during the third quarter of 2019.
In the United States Energy Information Administration (EIA) October 2019 "Short Term Energy Outlook," the EIA projects Brent prices to average $59 per barrel in the fourth quarter of 2019 and then fall to $57 per barrel by the second quarter of 2020, while WTI prices are projected to average $54 per barrel in the fourth quarter of 2019 and in 2020. Crude oil production in the United States is now projected to average 12.3 million barrels per day in 2019, a 12% increase from 2018. Additionally, the EIA projects that U.S. production will increase 7% in 2020 to an average of 13.2 million barrels per day. The International Energy Agency's (IEA) October 2019 "Oil Market Report" forecasts 2019 global demand to average approximately 100.3 million barrels per day, which is up 1% from 2018 demand, driven by an increase in the Asia Pacific region, while all other regions remain approximately the same.
The Henry Hub natural gas spot price averaged $2.38 per MMBtu in the third quarter of 2019, a decrease of $0.55 per MMBtu, or 19%, from the third quarter of 2018. The EIA October 2019 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.43 per MMBtu in the fourth quarter of 2019 and $2.52 per MMBtu in 2020.
North America operations
During the third quarter of 2019, the average United States land rig count decreased 13%, as compared to the third quarter of 2018. The market for both drilling and completion services softened during the third quarter of 2019 and we expect customer activity to further decline in the fourth quarter. Customers remain focused on staying within their capital spending budgets with some customers expected to slow down and scale back their completion programs for the rest of the year. Some of the other factors for expected activity reductions include holidays and potential weather impacts, an oversupplied gas market, and concerns about oil demand softness in 2020. Overall, we expect customer spending for the full year 2019 to decrease in North America as compared to 2018.
International operations
The average international rig count for the third quarter of 2019 was up 14% compared to the third quarter of 2018. We continue to see a broad-based recovery across numerous international geographies, and we expect more revenue and margin growth opportunities coming from mature fields and shallow water markets in 2020. Barring a global economic slowdown, broader offshore recovery should add momentum to the international growth.
Venezuela. The general license issued by the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury, which allows us to continue operating in Venezuela despite OFAC sanctions imposed against the Venezuelan energy industry, was set to expire on July 27, 2019, and we received several extensions through January 22, 2020. Consequently, unless OFAC further extends the term of the general license, we will cease operations in Venezuela on that date in order to comply with the sanctions. In that event, it is unlikely that we will be able to remove our assets that remain in Venezuela and those assets may be expropriated. Since we have previously written down all of our investment in Venezuela and have maintained limited operations in this country during the general license period, we do not expect the expiration of the license to have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
RESULTS OF OPERATIONS IN 2019 COMPARED TO 2018
Three Months Ended September 30, 2019 Compared with Three Months Ended September 30, 2018
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Revenue:
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Three Months Ended
September 30
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Favorable
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Percentage
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Millions of dollars
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2019
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2018
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(Unfavorable)
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Change
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Completion and Production
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$
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3,506
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$
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4,170
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$
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(664
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)
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(16
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)%
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Drilling and Evaluation
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2,044
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2,002
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42
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2
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Total revenue
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$
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5,550
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$
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6,172
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$
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(622
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)
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(10
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)%
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By geographic region:
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North America
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$
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2,949
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$
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3,739
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$
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(790
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)
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(21
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)%
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Latin America
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608
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522
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86
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16
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Europe/Africa/CIS
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831
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757
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74
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10
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Middle East/Asia
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1,162
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1,154
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8
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1
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Total revenue
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$
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5,550
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$
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6,172
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$
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(622
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)
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(10
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)%
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Operating income (loss):
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Three Months Ended
September 30
|
Favorable
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Percentage
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Millions of dollars
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2019
|
2018
|
(Unfavorable)
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Change
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Completion and Production
|
$
|
446
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$
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613
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$
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(167
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)
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(27
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)%
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Drilling and Evaluation
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150
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181
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(31
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)
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(17
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)
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Total
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596
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794
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(198
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)
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(25
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)
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Corporate and other
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(60
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)
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(78
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)
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18
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23
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Total operating income
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$
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536
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$
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716
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$
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(180
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)
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(25
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)%
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Consolidated revenue was $5.6 billion in the third quarter of 2019, a decrease of $622 million, or 10%, as compared to the third quarter of 2018. Consolidated operating income was $536 million during the third quarter of 2019, a 25% decrease from operating income of $716 million in the third quarter of 2018. These results were primarily driven by lower activity and pricing for stimulation services in North America land, partially offset by higher stimulation activity in Latin America and increased well construction activity in Europe/Africa/CIS. Revenue from North America was 53% of consolidated revenue in the third quarter of 2019 compared to 61% of consolidated revenue in the third quarter of 2018.
OPERATING SEGMENTS
Completion and Production
Completion and Production revenue in the third quarter of 2019 was $3.5 billion, a decrease of $664 million, or 16%, from the third quarter of 2018. Operating income in the third quarter of 2019 was $446 million, a decrease of $167 million, or 27%, from the third quarter of 2018. These results were primarily driven by lower activity and pricing for stimulation services in North America land, partially offset by higher stimulation activity in Latin America, improved cementing activity and completion tool sales internationally, and increased artificial lift activity in North America land.
Drilling and Evaluation
Drilling and Evaluation revenue in the third quarter of 2019 was $2.0 billion, an increase of $42 million, or 2%, from the third quarter of 2018. Higher activity for drilling-related services in Europe/Africa/CIS more than offset lower project management and drilling activity in the Middle East. Operating income in the third quarter of 2019 was $150 million, a decrease of $31 million, or 17%, compared to the third quarter of 2018, resulting primarily from lower profitability across all product service lines in the Middle East.
GEOGRAPHIC REGIONS
North America
North America revenue in the third quarter of 2019 was $2.9 billion, a 21% decrease compared to the third quarter of 2018, as a result of reduced activity and pricing for our services in North America land, primarily associated with lower pressure pumping activity, partially offset by increased artificial lift activity.
Latin America
Latin America revenue in the third quarter of 2019 was $608 million, a 16% increase compared to the third quarter of 2018, resulting primarily from higher activity across multiple product service lines in Mexico and increased stimulation activity in Argentina. These results were partially offset by lower well construction activity in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the third quarter of 2019 was $831 million, a 10% increase compared to the third quarter of 2018, primarily driven by increased well construction activity across the region and higher activity across multiple product service lines in the North Sea.
Middle East/Asia
Middle East/Asia revenue in the third quarter of 2019 was $1.2 billion, essentially flat compared to the third quarter of 2018. Increased activity across multiple product service lines in Indonesia and higher completion tool sales across the region offset the decline in drilling and project management activity in the Middle East.
NONOPERATING ITEMS
Effective tax rate. During the three months ended September 30, 2019, we recorded a total income tax provision of $76 million on pre-tax income of $372 million, resulting in an effective tax rate of 20.4%. During the three months ended September 30, 2018, we recorded a total income tax provision of $100 million on pre-tax income of $534 million, resulting in an effective tax rate of 18.8%. Our effective tax rates for both periods were impacted by certain discrete tax benefits and the geographic mix of earnings during the respective periods.
Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018
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Revenue:
|
Nine Months Ended
September 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2019
|
2018
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
10,973
|
|
$
|
12,141
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|
$
|
(1,168
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)
|
(10
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)%
|
Drilling and Evaluation
|
6,244
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|
5,918
|
|
326
|
|
6
|
|
Total revenue
|
$
|
17,217
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|
$
|
18,059
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|
$
|
(842
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)
|
(5
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)%
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|
|
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|
By geographic region:
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|
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|
North America
|
$
|
9,551
|
|
$
|
11,090
|
|
$
|
(1,539
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)
|
(14
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)%
|
Latin America
|
1,766
|
|
1,458
|
|
308
|
|
21
|
|
Europe/Africa/CIS
|
2,402
|
|
2,199
|
|
203
|
|
9
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|
Middle East/Asia
|
3,498
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|
3,312
|
|
186
|
|
6
|
|
Total revenue
|
$
|
17,217
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|
$
|
18,059
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|
$
|
(842
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)
|
(5
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)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
Nine Months Ended
September 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2019
|
2018
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
1,284
|
|
$
|
1,782
|
|
$
|
(498
|
)
|
(28
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)%
|
Drilling and Evaluation
|
418
|
|
560
|
|
(142
|
)
|
(25
|
)
|
Total
|
1,702
|
|
2,342
|
|
(640
|
)
|
(27
|
)
|
Corporate and other
|
(190
|
)
|
(218
|
)
|
28
|
|
13
|
|
Impairments and other charges
|
(308
|
)
|
(265
|
)
|
(43
|
)
|
(16
|
)
|
Total operating income
|
$
|
1,204
|
|
$
|
1,859
|
|
$
|
(655
|
)
|
(35
|
)%
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Consolidated revenue was $17.2 billion in the first nine months of 2019, a decrease of $842 million, or 5%, as compared to the first nine months of 2018. Consolidated operating income was $1.2 billion in the first nine months of 2019, a 35% decrease from operating income of $1.9 billion during the first nine months of 2018. This decline was primarily driven by lower activity and pricing for stimulation services in North America land, partially offset by increased well construction activity globally. Operating results in the first nine months of 2019 were also impacted by $308 million of impairments and other charges, while operating results in the first nine months of 2018 included $265 million of impairments and other charges related to Venezuela. See Note 2 to the condensed consolidated financial statements for further discussion on these charges. Revenue from North America was 55% of consolidated revenue in the first nine months of 2019, compared to 61% of consolidated revenue in the first nine months of 2018.
OPERATING SEGMENTS
Completion and Production
Completion and Production revenue in the first nine months of 2019 was $11.0 billion, a decrease of $1.2 billion, or 10%, compared to the first nine months of 2018. Operating income in the first nine months of 2019 was $1.3 billion, a decrease of $498 million, or 28%, compared to the first nine months of 2018. These results were primarily driven by lower activity and pricing for stimulation services in North America land, partially offset by higher cementing activity globally, increased completion tool sales internationally, higher artificial lift activity in North America land and improved stimulation activity in Latin America.
Drilling and Evaluation
Drilling and Evaluation revenue in the first nine months of 2019 was $6.2 billion, an increase of $326 million, or 6%, compared to the first nine months of 2018, primarily related to higher activity for drilling-related services in Europe/Africa/CIS and Latin America and improved wireline activity globally, partially offset by a decline in project management and drilling-related activity in the Middle East. Operating income in the first nine months of 2019 was $418 million, a decrease of $142 million, or 25%, compared to the first nine months of 2018, resulting primarily from reduced profitability across all product service lines in the Middle East.
GEOGRAPHIC REGIONS
North America
North America revenue in the first nine months of 2019 was $9.6 billion, a 14% decrease compared to the first nine months of 2018. These results were driven by lower activity and pricing for stimulation services in North America land,
partially offset by higher artificial lift activity.
Latin America
Latin America revenue in the first nine months of 2019 was $1.8 billion, a 21% increase compared to the first nine months of 2018, resulting primarily from higher activity for the majority of our product service lines in Mexico, Argentina and Ecuador. These results were partially offset by reduced well construction activity in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the first nine months of 2019 was $2.4 billion, a 9% increase from the first nine months of 2018, primarily due to increased well construction activity across the region and higher activity across multiple product service lines in Israel and the North Sea.
Middle East/Asia
Middle East/Asia revenue in the first nine months of 2019 was $3.5 billion, a 6% increase from the first nine months of 2018, primarily resulting from increased completion tool sales throughout the region, increased project management activity in India, higher stimulation activity in the Middle East, and improved drilling and wireline activity in Asia Pacific. These results were partially offset by reduced fluids and project management activity in the Middle East.
OTHER OPERATING ITEMS
Impairments and other charges were $308 million in the nine months ended September 30, 2019, primarily related to asset impairments and severance costs. This compares to $265 million of charges in the nine months ended September 30, 2018, representing a write-down of all of our remaining investment in Venezuela. See Note 2 to the condensed consolidated financial statements for further discussion on these charges.
NONOPERATING ITEMS
Effective tax rate. During the nine months ended September 30, 2019, we recorded a total income tax provision of $190 million on pre-tax income of $715 million, resulting in an effective tax rate of 26.6%. During the nine months ended September 30, 2018, we recorded a total income tax provision of $367 million on pre-tax income of $1.4 billion, resulting in an effective tax rate of 27.1%. Our effective tax rate for these periods were significantly impacted by the impairments and other charges recorded during the respective periods as we did not recognize a corresponding financial statement tax benefit for the majority of these charges. Additionally, our effective tax rate for both periods were impacted by a geographic mix of earnings during the respective periods.
ENVIRONMENTAL MATTERS
We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. For information related to environmental matters, see Note 8 to the condensed consolidated financial statements.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Forward-looking information is based on projections and estimates, not historical information. Some statements in this Form 10-Q are forward-looking and use words like “may,” “may not,” “believe,” “do not believe,” “plan,” “estimate,” “intend,” “expect,” “do not expect,” “anticipate,” “do not anticipate,” “should,” “likely” and other expressions. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. Our results of operations can be affected by inaccurate assumptions we make or by known or unknown risks and uncertainties. In addition, other factors may affect the accuracy of our forward-looking information. As a result, no forward-looking information can be guaranteed. Actual events and the results of our operations may vary materially.
We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events or for any other reason. You should review any additional disclosures we make in our press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.