Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the condensed consolidated financial statements included in "Item 1. Financial Statements" contained herein.
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:
•our Completion and Production segment delivers cementing, stimulation, intervention, pressure control, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Artificial Lift, and Pipeline and Process Services.
•our Drilling and Evaluation segment provides field and reservoir modeling, drilling, fluids and specialty chemicals, 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 Project Management.
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 in the United States, Malaysia, Singapore, and the United Kingdom. With approximately 40,000 employees, we operate in more than 70 countries around the world, and our corporate headquarters is in Houston, Texas.
Our value proposition is to collaborate and engineer solutions to maximize asset value for our customers. We work to achieve strong cash flows and returns for our shareholders by delivering technology and services that improve efficiency, increase recovery, and maximize production for our customers. Our strategic priorities are to:
-deliver profitable growth in our international business;
-maximize cash flows in our North America business;
-accelerate the deployment and integration of our digital technologies, both internally and with our customers;
-improve capital efficiency by advancing our technologies and making strategic choices that lower our capital expenditure profile; and
-actively participate in advancing a sustainable energy future.
The following charts depict revenue split between our two operating segments and our four primary geographic regions for the quarter ended September 30, 2021.
HAL Q3 2021 FORM 10-Q | 13
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Executive Overview
|
Market conditions update and COVID-19 pandemic
The oil and gas industry continued to be impacted from shutdowns as a result of the COVID-19 pandemic, specifically in Asia. In spite of COVID-19 interruptions from mobility restrictions and daily precautions continuing to remain in place, business activity around the world has adjusted and continues to improve. West Texas Intermediate (WTI) oil prices have recovered to pre-pandemic levels, averaging approximately $71 per barrel during the third quarter of 2021. The U.S. land average rig count continues to be well below pre-pandemic levels, but it did rise 11% in the third quarter of 2021 compared to the second quarter of 2021. The Brent crude oil price averaged over $73 per barrel during the third quarter of 2021 and the international average rig count increased 5% as compared to the second quarter of 2021. With the current shortage of other sources of energy, and the economic growth associated with what appears to be a global emergence from the pandemic, the demand for and price of oil has improved. We believe that global oil demand will continue increasing in the fourth quarter of 2021 and into 2022.
Financial results
The following graph illustrates our revenue and operating margins for each operating segment for the third quarter of 2020 and 2021.
During the third quarter of 2021, we generated total company revenue of $3.9 billion, a 30% increase as compared to the third quarter of 2020. We reported operating income of $446 million during the third quarter of 2021 that included $12 million of special items. This compares to operating income of $142 million during the third quarter of 2020 which was impacted by $133 million of severance and other charges. Our Completion and Production segment revenue increased 36% in the third quarter of 2021 as compared to the third quarter of 2020, primarily due to increased pressure pumping services in North America land. Our Drilling and Evaluation segment revenue increased 23% in the third quarter of 2021 as compared to the third quarter of 2020, driven primarily by improvements in drilling-related services activity in the Western Hemisphere. Operating margins in both of our operating segments improved in the third quarter of 2021 as compared to the third quarter of 2020 on higher commodity prices driving increased activity, higher utilization, and better operating leverage from our structural cost reductions implemented during 2020.
In North America, our revenue increased 64% in the third quarter of 2021, as compared to the third quarter of 2020, driven by increased pressure pumping services in North America land, as well as increased activity in most other product service lines. Both of our segments' revenue increased over 50% in the third quarter of 2021 compared to the third quarter of 2020, while the average North America rig count more than doubled for the same period. Although the North America rig count is increasing, it is still below pre-pandemic levels.
Revenue in our international markets increased 13% in the third quarter of 2021, as compared to the third quarter of 2020, primarily driven by improvements in most product service lines in Latin America, particularly Argentina, drilling-related services, project management activity, and pipeline services in Middle East/Asia, and cementing and well intervention in Europe/Africa/CIS, partially offset by lower completion tool sales in the Eastern Hemisphere.
HAL Q3 2021 FORM 10-Q | 14
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Executive Overview
|
Sustainability and Energy Advancement
We continue to pursue our strategic initiatives around advancing cleaner, affordable energy, and supporting sustainable energy advancements, using innovation and technology to reduce the environmental impact of producing oil and gas. As such, we are continuing to develop and deploy low-carbon solutions to help oil and gas operators lower their current emissions profiles while also using our existing technologies in renewable energy applications. In addition, Halliburton Labs, our energy transition accelerator, announced its inaugural group of participating companies in the first quarter of 2021 and announced four additional participating companies in the third quarter of 2021, doubling the number of participating companies to eight.
Our operating performance and liquidity are described in more detail in "Liquidity and Capital Resources" and “Business Environment and Results of Operations.”
HAL Q3 2021 FORM 10-Q | 15
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Liquidity and Capital Resources
|
LIQUIDITY AND CAPITAL RESOURCES
As of both September 30, 2021 and December 31, 2020, we had $2.6 billion of cash and equivalents.
Significant sources and uses of cash during the first nine months of 2021
Sources of cash:
•Cash flows from operating activities were $1.2 billion. This included a positive impact from the primary components of our working capital (receivables, inventories, and accounts payable) of a net $81 million.
Uses of cash:
•In February of 2021, we repaid the $185 million principal balance of our 8.75% senior debentures at maturity.
•In August of 2021, we redeemed the entire $500 million aggregate principal amount outstanding of our 3.25% senior notes at par.
•Capital expenditures were $483 million, a decrease of 5% from the first nine months of 2020, as we adjusted to market conditions.
•We paid $121 million in dividends to our shareholders.
Future sources and uses of cash
We manufacture most of our own equipment, which allows flexibility to increase or decrease our capital expenditures based on market conditions. We expect capital spending for the full year 2021 will be approximately 5-6% of revenue. We believe this level of spend will allow us to invest in accordance with our key strategic priorities, while continuing to rationalize our business to market conditions. We intend to continue to maintain capital discipline, monitor the rapidly changing market dynamics, and adjust capital spending accordingly.
Our quarterly dividend rate is $0.045 per common share, or approximately $40 million. We will continue to maintain our focus on liquidity and review our quarterly dividend considering our priorities of debt reduction and, as market conditions evolve, reinvesting in our business.
Our Board of Directors has authorized a program to repurchase our common stock from time to time. No repurchases occurred during the third quarter of 2021 under this program. Approximately $5.1 billion remained authorized for repurchases as of September 30, 2021 and may be used for open market and other share purchases.
Other factors affecting liquidity
Financial position in current market. As of September 30, 2021, we had $2.6 billion of cash and equivalents and $3.5 billion of available committed bank credit under our revolving credit facility. We believe we have a manageable debt maturity profile, with approximately $1.6 billion coming due through 2026. 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 $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of September 30, 2021. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization, however, none of these triggering events have occurred.
Credit ratings. Our credit ratings with Standard & Poor’s (S&P) remain BBB+ 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 risk that our customers may delay or fail 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. Given the nature and significance of the pandemic and disruption in the oil and gas industry, we have experienced delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies.
HAL Q3 2021 FORM 10-Q | 16
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Liquidity and Capital Resources
|
Receivables from our primary customer in Mexico accounted for approximately 10% of our total receivables as of September 30, 2021. While we have experienced payment delays in Mexico, these amounts are not in dispute and we have not historically had, and we do not expect, any material write-offs due to collectability of receivables from this customer.
HAL Q3 2021 FORM 10-Q | 17
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Business Environment and Results of Operations
|
BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS
We operate in more than 70 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 2021, based upon the location of the services provided and products sold, 40% of our consolidated revenue was from the United States, compared to 38% of consolidated revenue from the United States in the first nine months of 2020. 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. The COVID-19 pandemic and efforts to mitigate its effect had a substantial negative impact on the global economy and demand for oil. As discussed earlier, although there are signs of improvement in many areas around the world, the potential for new lockdowns and other mitigation efforts to deal with an increase in infection rates in certain areas remains a key risk for oil demand.
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 capital, 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.
Traditionally, the North America market recovers from downturns in the industry quicker than the international markets. We have started to see this play out as rig counts have recovered faster in 2021 in North America than internationally. We would expect to continue to see this dynamic in 2022.
The table below shows the average oil and natural gas prices for WTI, United Kingdom Brent crude oil, and Henry Hub natural gas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Year Ended
December 31
|
|
|
2021
|
2020
|
2020
|
|
Oil price - WTI (1)
|
$
|
70.62
|
|
$
|
40.89
|
|
$
|
39.23
|
|
|
Oil price - Brent (1)
|
73.47
|
|
42.96
|
|
41.76
|
|
|
Natural gas price - Henry Hub (2)
|
4.36
|
|
2.00
|
|
2.04
|
|
|
|
|
|
|
|
|
(1)
|
Oil price measured in dollars per barrel.
|
|
(2)
|
Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu.
|
|
HAL Q3 2021 FORM 10-Q | 18
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Business Environment and Results of Operations
|
The historical average rig counts based on the weekly Baker Hughes rig count data were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
Nine Months Ended
September 30
|
Year Ended
December 31
|
|
2021
|
2020
|
2021
|
2020
|
2020
|
U.S. Land
|
485
|
|
242
|
|
435
|
|
460
|
|
418
|
|
U.S. Offshore
|
11
|
|
12
|
|
15
|
|
16
|
|
15
|
|
Canada
|
151
|
|
47
|
|
122
|
|
90
|
|
89
|
|
North America
|
647
|
|
301
|
|
572
|
|
566
|
|
522
|
|
International
|
772
|
|
731
|
|
735
|
|
880
|
|
825
|
|
Worldwide total
|
1,419
|
|
1,032
|
|
1,307
|
|
1,446
|
|
1,347
|
|
Business outlook
In the United States Energy Information Administration (EIA) October 2021 "Short Term Energy Outlook," the EIA projects WTI prices to average $78 per barrel in the fourth quarter of 2021, and $68 per barrel for the full year 2021 and 2022. The EIA's report projects Brent oil prices to average $81 per barrel in the fourth quarter of 2021, with a full year 2021 average of $71 per barrel, a rise of approximately $29 per barrel as compared to the full year 2020. The EIA's full year projection for 2022 is that Brent oil prices will average $72 per barrel.
The Henry Hub natural gas price averaged $4.36 per MMBtu in the third quarter of 2021 as compared to $2.00 per MMBtu in the third quarter of 2020, an increase of $2.36 per MMBtu. The EIA October 2021 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $4.17 per MMBtu for the full year 2021, and $4.01 per MMBtu in 2022.
The International Energy Agency's (IEA) October 2021 "Oil Market Report" forecasts global oil demand to reach 96.1 million barrels per day in 2021, an increase of 5.2 million barrels per day from 2020 and to rise by an additional 3.2 million barrels in 2022. The EIA projects crude oil production in the United States will average 11.0 million barrels per day in 2021, approximately a 3% decrease from 2020, and to average 11.7 million barrels per day in 2022, a 6% increase from 2021, as tight oil production rises in the United States. The EIA anticipates that production will grow in 2022 as a result of operators increasing rig counts, which are expected to more than offset production decline rates.
In spite of COVID-19 interruptions from mobility restrictions and daily precautions continuing to remain in place, business activity around the world has adjusted and continues to improve. We expect the balancing of global supply and demand to continue to tighten, resulting in a strong commodity price environment. In the international markets, activity increases continued in the third quarter of 2021 and we believe activity will accelerate into year-end. In North America, the bifurcation between publicly traded and private exploration and production (E&Ps) company activity continued in the third quarter of 2021. Publicly traded E&Ps generally remain committed to their spending plans for 2021, while private E&Ps, which operate about 60% of the U.S. land rig count, are generally increasing activity in an effort to continue to take advantage of a stronger commodity price environment. Drilled but uncompleted well counts (DUCs) in North America reached the lowest level since 2013, as operators depleted the surplus of DUCs accumulated in 2020. Next year we expect North America E&Ps to drill and complete more new wells to offset steep base decline rates and deliver production into the market. In North America, we expect moderate pricing and activity improvements in drilling and completions to drive further growth in the fourth quarter of 2021.
In 2022, we expect international activity momentum to accelerate and international pricing to move higher in certain geographies as a result of higher activity. While large tenders remain competitive, we are already seeing modest price increases on discrete work in underserved markets. In North America, we expect E&P spending to increase, including net pricing gains for not only our low-emissions equipment but also the rest of our fracturing fleet and for our drilling, cementing, drill bits, and artificial lift businesses.
HAL Q3 2021 FORM 10-Q | 19
|
|
|
|
|
|
|
Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (QTD)
|
RESULTS OF OPERATIONS IN 2021 COMPARED TO 2020
Three Months Ended September 30, 2021 Compared with Three Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
Three Months Ended
September 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2021
|
2020
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
2,136
|
|
$
|
1,574
|
|
$
|
562
|
|
36
|
%
|
Drilling and Evaluation
|
1,724
|
|
1,401
|
|
323
|
|
23
|
|
Total revenue
|
$
|
3,860
|
|
$
|
2,975
|
|
$
|
885
|
|
30
|
%
|
|
|
|
|
|
By geographic region:
|
|
|
|
|
North America
|
$
|
1,615
|
|
$
|
984
|
|
$
|
631
|
|
64
|
%
|
Latin America
|
624
|
|
380
|
|
244
|
|
64
|
|
Europe/Africa/CIS
|
676
|
|
649
|
|
27
|
|
4
|
|
Middle East/Asia
|
945
|
|
962
|
|
(17)
|
|
(2)
|
|
Total revenue
|
$
|
3,860
|
|
$
|
2,975
|
|
$
|
885
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
Three Months Ended
September 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2021
|
2020
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
322
|
|
$
|
212
|
|
$
|
110
|
|
52
|
%
|
Drilling and Evaluation
|
186
|
|
105
|
|
81
|
|
77
|
|
Total
|
508
|
|
317
|
|
191
|
|
60
|
|
Corporate and other
|
(50)
|
|
(42)
|
|
(8)
|
|
(19)
|
|
Impairments and other charges
|
(12)
|
|
(133)
|
|
121
|
|
n/m
|
Total operating income
|
$
|
446
|
|
$
|
142
|
|
$
|
304
|
|
214%
|
n/m = not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue was $3.9 billion in the third quarter of 2021, an increase of $885 million, or 30%, as compared to the third quarter of 2020. Consolidated operating income was $446 million during the third quarter of 2021, a $304 million increase from operating income of $142 million during the third quarter of 2020. The increase in revenue was primarily driven by higher activity and pricing for pressure pumping services and increases across multiple other product service lines in North America land and Latin America, as well as additional artificial lift activity in North America land. The Middle East/Asia region grew drilling-related services and project management activity, the Europe/Africa/CIS region improved cementing activity, wireline activity, testing services, and well intervention, while pipeline services increased in China and Russia. Partially offsetting these increases were lower completion tool sales in the Eastern Hemisphere, less stimulation activity in the Middle East/Asia, and decreased completion tool sales and stimulation activity in Canada. The increase in operating income was due in part to the negative impact on third quarter 2020 operating income from $133 million of impairments and other charges that were included in the results of that quarter, while the third quarter of 2021 benefited from higher commodity prices driving increased activity, higher utilization, and improved operating leverage from the structural cost reductions we implemented during 2020. Revenue from North America was 42% of consolidated revenue in the third quarter of 2021 compared to 33% of consolidated revenue in the third quarter of 2020.
Operating Segments
Completion and Production
Completion and Production revenue in the third quarter of 2021 was $2.1 billion, an increase of $562 million, or 36%, when compared to the third quarter of 2020, while operating income was $322 million, an increase of $110 million, or 52%. These results were primarily due to an increase in pressure pumping services and artificial lift activity in North America land, as well as multiple product service lines in Latin America, and additional completion tool sales in the Western Hemisphere. In addition, well intervention services increased globally, pipeline services improved in China and Russia, and pressure pumping
HAL Q3 2021 FORM 10-Q | 20
|
|
|
|
|
|
|
Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (QTD)
|
services increased in Europe/Africa/CIS. Partially offsetting the overall increase were decreased completion tool sales in the Eastern Hemisphere and Canada, and lower stimulation activity in Middle East/Asia region and Canada.
Drilling and Evaluation
Drilling and Evaluation revenue in the third quarter of 2021 was $1.7 billion, an increase of $323 million, or 23% when compared to the third quarter of 2020, while operating income was $186 million, an increase of $81 million, or 77%. These results were primarily driven by increases in drilling-related services, wireline activity, project management activity, and testing services in the Western Hemisphere, higher drilling-related services across the Middle East/Asia region, the United Kingdom, and Nigeria, along with higher fluid services in Russia. Also, project management activity rose in the Middle East, and testing services and wireline activity increased in Europe/Africa/CIS. Partially offsetting the increases were decreases in drilling-related services in Norway, Saudi Arabia, and Asia, lower project management activity in India, lower wireline activity in Saudi Arabia, the United Kingdom, and Australia, and less drilling activity in the United Arab Emirates.
Geographic Regions
North America
North America revenue in the third quarter of 2021 was $1.6 billion, a 64% increase compared to the third quarter of 2020. This increase was primarily due to increased activity across multiple product service lines in North America land and the Gulf of Mexico, as well as increased drilling services in Canada. Partially offsetting these increases were lower pressure pumping services and completion tool sales in Canada, and lower stimulation activity in the Gulf of Mexico.
Latin America
Latin America revenue in the third quarter of 2021 was $624 million, a 64% increase compared to the third quarter of 2020, resulting from increased activity across multiple product service lines in Argentina, Mexico, and Brazil, additional fluid services and completion tool sales in Guyana, higher well construction activity, well intervention services, and wireline activity in Colombia, and improved project management and well construction activity in Ecuador. Partially offsetting these increases were reduced completion tool sales in Trinidad.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the third quarter of 2021 was $676 million, a 4% increase compared to the third quarter of 2020, resulting primarily from increased activity across multiple product service lines in West Africa, Angola, and Mozambique, additional fluid activity and pipeline services in Russia, improved well construction activity in the United Kingdom, and higher well intervention services across the region. Partially offsetting these increases were lower drilling-related services in Norway, decreases in multiple product service lines in Azerbaijan, and lower completion tool sales in the United Kingdom, Algeria and Russia.
Middle East/Asia
Middle East/Asia revenue in the third quarter of 2021 was $945 million, a 2% decrease compared to the third quarter of 2020, largely resulting from a decline in completion tool sales across the region, lower activity across multiple product service lines in the United Arab Emirates, India, Saudi Arabia, Kuwait, and Indonesia, and declines in stimulation and wireline activity in Australia. Partially offsetting these declines were higher project management activity in Oman, Saudi Arabia, and Iraq, increased well construction activity in Australia, additional fluids activity in the Middle East, and improved pipeline services in China.
Other Operating Items
Impairments and other charges. During the three months ended September 30, 2021, we recognized $12 million of special charges. This includes $36 million of depreciation catch-up expense related to assets previously classified as held for sale related to our Pipeline and Process Services business, $15 million of severance costs, and $35 million of other items, partially offset by a $74 million gain related to the closing of the structured transaction for our North America real estate assets. During the three months ended September 30, 2020, we recognized $133 million of severance costs and other charges to further adjust our cost structure to market conditions. See Note 2 to the condensed consolidated financial statements for further discussion on the third quarter of 2021 charges.
HAL Q3 2021 FORM 10-Q | 21
|
|
|
|
|
|
|
Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (QTD)
|
Nonoperating Items
Effective tax rate. During the three months ended September 30, 2021, we recorded a total income tax provision of $76 million on a pre-tax income of $316 million, resulting in an effective tax rate of 24% for the quarter. During the three months ended September 30, 2020, we recorded a total income tax provision of $18 million on a pre-tax loss of $1 million, resulting in an unusually high negative effective tax rate for the quarter.
HAL Q3 2021 FORM 10-Q | 22
|
|
|
|
|
|
|
Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (YTD)
|
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
Nine Months Ended
September 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2021
|
2020
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
6,054
|
|
$
|
6,029
|
|
$
|
25
|
|
—
|
%
|
Drilling and Evaluation
|
4,964
|
|
5,179
|
|
(215)
|
|
(4)
|
|
Total revenue
|
$
|
11,018
|
|
$
|
11,208
|
|
$
|
(190)
|
|
(2)
|
%
|
|
|
|
|
|
By geographic region:
|
|
|
|
|
North America
|
$
|
4,588
|
|
$
|
4,493
|
|
$
|
95
|
|
2
|
%
|
Latin America
|
1,693
|
|
1,242
|
|
451
|
|
36
|
|
Europe/Africa/CIS
|
1,989
|
|
2,171
|
|
(182)
|
|
(8)
|
|
Middle East/Asia
|
2,748
|
|
3,302
|
|
(554)
|
|
(17)
|
|
Total revenue
|
$
|
11,018
|
|
$
|
11,208
|
|
$
|
(190)
|
|
(2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
Nine Months Ended
September 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2021
|
2020
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
891
|
|
$
|
713
|
|
$
|
178
|
|
25
|
%
|
Drilling and Evaluation
|
532
|
|
452
|
|
80
|
|
18
|
|
Total
|
1,423
|
|
1,165
|
|
258
|
|
22
|
|
Corporate and other
|
(161)
|
|
(152)
|
|
(9)
|
|
(6)
|
|
Impairments and other charges
|
(12)
|
|
(3,353)
|
|
3,341
|
|
n/m
|
Total operating income (loss)
|
$
|
1,250
|
|
$
|
(2,340)
|
|
$
|
3,590
|
|
153
|
%
|
n/m = not meaningful
|
|
|
|
|
Consolidated revenue was $11.0 billion in the first nine months of 2021, a decrease of $190 million, or 2%, as compared to the first nine months of 2020. We reported operating income of $1.3 billion in the first nine months of 2021 compared to an operating loss of $2.3 billion during the first nine months of 2020. The decrease in revenue was primarily driven by lower activity associated with completion tool sales globally, except in Latin America, drilling-related services, project management activity, wireline activity, and testing services in the Eastern Hemisphere, and pressure pumping services in Middle East/Asia. Partially offsetting the decreases were increases in stimulation and artificial lift activity in the Western Hemisphere, improved activity across multiple product service lines in Latin America, and higher pipeline services in Asia and the United Kingdom. Operating results in the first nine months of 2020 included $3.4 billion of impairments and other charges while the first nine months of 2021 benefited from higher commodity pricing driving increased activity, higher utilization, and operating leverage from 2020 structural cost reductions. Revenue from North America was 42% of consolidated revenue in the first nine months of 2021, compared to 40% of consolidated revenue in the first nine months of 2020.
Operating Segments
Completion and Production
Completion and Production revenue in the first nine months of 2021 was $6.1 billion, an increase of $25 million compared to the first nine months of 2020. This increase was primarily driven by a rise in stimulation and artificial lift activity in the Western Hemisphere, higher pipeline services in China and the United Kingdom, and well intervention services in Latin America. Partially offsetting these increases were decreased pressure pumping services in Middle East/Asia and lower completion tool sales globally. Operating income in the first nine months of 2021 was $891 million, an increase of $178 million, or 25%, compared to the first nine months of 2020, mainly driven by higher utilization for pressure pumping in North America land and Latin America, increased well intervention services in Latin America and Middle East/Asia, and improved artificial lift activity in North America land. Partially offsetting these increases to operating income were lower completion tool sales in the Eastern Hemisphere, the Gulf of Mexico, and Canada.
HAL Q3 2021 FORM 10-Q | 23
|
|
|
|
|
|
|
Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (YTD)
|
Drilling and Evaluation
Drilling and Evaluation revenue in the first nine months of 2021 was $5.0 billion, a decrease of $215 million, or 4%, compared to the first nine months of 2020, primarily related to reduced drilling-related services in the Eastern Hemisphere, wireline activity in the Eastern Hemisphere and North America land, and decreased project management activity in Iraq, India, and Europe/Africa/CIS. Also, testing services were reduced in Saudi Arabia and software sales declined globally. Partially offsetting these decreases were increased fluid services in North America land and Latin America, improved drilling services in Canada and Brazil, and increased wireline activity in Argentina. Operating income in the first nine months of 2021 was $532 million, an increase of $80 million, or 18%, compared to the first nine months of 2020 based in part on improved margins related to project management activity in India and Saudi Arabia, as well as higher drilling-related services in the Western Hemisphere and wireline activity in Latin America. Offsetting these operating income improvements was a global reduction of software sales.
Geographic Regions
North America
North America revenue in the first nine months of 2021 was $4.6 billion, a 2% increase compared to the first nine months of 2020, driven by higher activity and pricing across the region, primarily associated with stimulation activity and drilling-related services. Artificial lift activity improved in North America land and project management activity increased in the Gulf of Mexico. These increases were partially offset by lower completion tool sales across the region, along with reduced cementing and wireline activity.
Latin America
Latin America revenue in the first nine months of 2021 was $1.7 billion, a 36% increase compared to the first nine months of 2020, resulting primarily from an increase across multiple product service lines in Argentina, increased fluid services in Brazil and the Caribbean, along with improved stimulation activity, completion tool sales, testing services, and project management activity in Mexico, additional drilling services in Brazil, and increased well intervention services in Brazil and Colombia. Partially offsetting these increases were lower completion tool sales in the Caribbean and lower software sales in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the first nine months of 2021 was $2.0 billion, an 8% decrease from the first nine months of 2020, driven by a decrease across multiple product service lines in Russia, the North Sea, Azerbaijan, and Nigeria. These declines were partially offset by an increase in completion tool sales in Norway and increased pipeline services in the the United Kingdom and Russia, testing services in Algeria, and a slight improvement in stimulation activity across the region.
Middle East/Asia
Middle East/Asia revenue in the first nine months of 2021 was $2.7 billion, a 17% decrease from the first nine months of 2020, resulting primarily from reduced activity across multiple product service lines in Saudi Arabia and United Arab Emirates, lower pressure pumping services, drilling-related services, and completion tool sales across the region, reduced project management activity in Iraq and India, and decreases in wireline activity in Malaysia. Partially offsetting these decreases were improved pipeline services in China and drilling services in Australia.
Other Operating Items
Impairments and other charges. During the nine months ended September 30, 2021, we recognized $12 million of special items. This includes $36 million of depreciation catch-up expense related to assets previously classified as held for sale related to our Pipeline and Process Services business, $15 million of severance costs, and $35 million of other items, partially offset by a $74 million gain related to the closing of the structured transaction for our North America real estate assets. This compares to $3.4 billion of impairments and other charges in the nine months ended September 30, 2020 to further adjust our cost structure to market conditions. These charges consisted primarily of asset impairments, mostly associated with pressure pumping equipment and real estate facilities, as well as inventory write-offs, severance costs, and other charges. See Note 2 to the condensed consolidated financial statements for further discussion on the third quarter of 2021 charges.
HAL Q3 2021 FORM 10-Q | 24
|
|
|
|
|
|
|
Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (YTD)
|
Nonoperating Items
Effective tax rate. During the nine months ended September 30, 2021, we recorded a total income tax provision of $193 million on a pre-tax income of $834 million, resulting in an effective tax rate of 23.2%. During the nine months ended September 30, 2020, we recorded a total income tax benefit of $265 million on pre-tax loss of $3.0 billion, resulting in an effective tax rate of 8.9%. The unusual rate for the nine months ended September 30, 2020 was largely the result of recording a valuation allowance against certain deferred tax assets in the first quarter of 2020, primarily due to the unprecedented disruption in the oil and gas industry.
HAL Q3 2021 FORM 10-Q | 25
|
|
|
|
|
|
|
|
|
|
|
Part I. Item 2 | Forward-Looking Information
|
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.