HALLIBURTON CO - Quarter Report: 2023 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from _______to_______
Commission File Number 001-03492
(Exact name of registrant as specified in its charter)
| Delaware | 75-2677995 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| 3000 North Sam Houston Parkway East, | Houston, | Texas | 77032 | ||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(281) 871-2699
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common Stock, par value $2.50 per share | HAL | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | |||||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ | |||||||||||
| Emerging Growth Company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
As of July 19, 2023, there were 898,546,281 shares of Halliburton Company common stock, $2.50 par value per share, outstanding.
HALLIBURTON COMPANY
Index
| Page No. | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||
| Millions of dollars and shares except per share data | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | |||||||||||||||||
| Services | $ | 4,181 | $ | 3,686 | $ | 8,347 | $ | 6,759 | |||||||||
| Product sales | 1,617 | 1,388 | 3,128 | 2,599 | |||||||||||||
| Total revenue | 5,798 | 5,074 | 11,475 | 9,358 | |||||||||||||
| Operating costs and expenses: | |||||||||||||||||
| Cost of services | 3,404 | 3,123 | 6,803 | 5,833 | |||||||||||||
| Cost of sales | 1,316 | 1,166 | 2,563 | 2,155 | |||||||||||||
| General and administrative | 54 | 67 | 108 | 119 | |||||||||||||
| Impairments and other charges | — | 344 | — | 366 | |||||||||||||
| SAP S4 upgrade expense | 13 | — | 13 | — | |||||||||||||
| Total operating costs and expenses | 4,787 | 4,700 | 9,487 | 8,473 | |||||||||||||
| Operating income | 1,011 | 374 | 1,988 | 885 | |||||||||||||
Interest expense, net of interest income of $28, $24, $67, and $43 | (92) | (101) | (171) | (208) | |||||||||||||
| Loss on Blue Chip Swap transactions | (104) | — | (104) | — | |||||||||||||
| Loss on early extinguishment of debt | — | — | — | (42) | |||||||||||||
| Other, net | (32) | (42) | (101) | (72) | |||||||||||||
| Income before income taxes | 783 | 231 | 1,612 | 563 | |||||||||||||
| Income tax provision | (167) | (114) | (341) | (182) | |||||||||||||
| Net income | $ | 616 | $ | 117 | $ | 1,271 | $ | 381 | |||||||||
| Net income attributable to noncontrolling interest | (6) | (8) | (10) | (9) | |||||||||||||
| Net income attributable to company | $ | 610 | $ | 109 | $ | 1,261 | $ | 372 | |||||||||
| Basic net income per share | $ | 0.68 | $ | 0.12 | $ | 1.40 | $ | 0.41 | |||||||||
| Diluted net income per share | $ | 0.68 | $ | 0.12 | $ | 1.39 | $ | 0.41 | |||||||||
| Basic weighted average common shares outstanding | 901 | 904 | 902 | 902 | |||||||||||||
| Diluted weighted average common shares outstanding | 903 | 909 | 905 | 906 | |||||||||||||
| See notes to condensed consolidated financial statements. | |||||||||||||||||
HAL Q2 2023 FORM 10-Q | 1
HALLIBURTON COMPANY
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net income | $ | 616 | $ | 117 | $ | 1,271 | $ | 381 | |||||||||
| Other comprehensive income (loss), net of income taxes | 1 | (1) | 2 | 4 | |||||||||||||
| Comprehensive income | $ | 617 | $ | 116 | $ | 1,273 | $ | 385 | |||||||||
| Comprehensive income attributable to noncontrolling interest | (6) | (8) | (10) | (9) | |||||||||||||
| Comprehensive income attributable to company shareholders | $ | 611 | $ | 108 | $ | 1,263 | $ | 376 | |||||||||
| See notes to condensed consolidated financial statements. | |||||||||||||||||
HAL Q2 2023 FORM 10-Q | 2
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
| Millions of dollars and shares except per share data | June 30, 2023 | December 31, 2022 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and equivalents | $ | 2,105 | $ | 2,346 | |||||||
Receivables (net of allowances for credit losses of $723 and $731) | 4,946 | 4,627 | |||||||||
| Inventories | 3,241 | 2,923 | |||||||||
| Other current assets | 1,151 | 1,056 | |||||||||
| Total current assets | 11,443 | 10,952 | |||||||||
Property, plant, and equipment (net of accumulated depreciation of $11,768 and $11,660) | 4,483 | 4,348 | |||||||||
| Goodwill | 2,840 | 2,829 | |||||||||
| Deferred income taxes | 2,570 | 2,636 | |||||||||
| Operating lease right-of-use assets | 1,054 | 913 | |||||||||
| Other assets | 1,683 | 1,577 | |||||||||
| Total assets | $ | 24,073 | $ | 23,255 | |||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 3,188 | $ | 3,121 | |||||||
| Accrued employee compensation and benefits | 567 | 634 | |||||||||
| Taxes other than income | 350 | 349 | |||||||||
| Income tax payable | 267 | 294 | |||||||||
| Current portion of operating lease liabilities | 253 | 224 | |||||||||
| Other current liabilities | 721 | 723 | |||||||||
| Total current liabilities | 5,346 | 5,345 | |||||||||
| Long-term debt | 7,931 | 7,928 | |||||||||
| Operating lease liabilities | 892 | 791 | |||||||||
| Employee compensation and benefits | 385 | 408 | |||||||||
| Other liabilities | 792 | 806 | |||||||||
| Total liabilities | 15,346 | 15,278 | |||||||||
| Shareholders’ equity: | |||||||||||
Common stock, par value $2.50 per share (authorized 2,000 shares, issued 1,065 and 1,066 shares) | 2,663 | 2,664 | |||||||||
| Paid-in capital in excess of par value | — | 50 | |||||||||
| Accumulated other comprehensive loss | (228) | (230) | |||||||||
| Retained earnings | 11,459 | 10,572 | |||||||||
Treasury stock, at cost (167 and 164 shares) | (5,201) | (5,108) | |||||||||
| Company shareholders’ equity | 8,693 | 7,948 | |||||||||
| Noncontrolling interest in consolidated subsidiaries | 34 | 29 | |||||||||
| Total shareholders’ equity | 8,727 | 7,977 | |||||||||
| Total liabilities and shareholders’ equity | $ | 24,073 | $ | 23,255 | |||||||
| See notes to condensed consolidated financial statements. | |||||||||||
HAL Q2 2023 FORM 10-Q | 3
HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30 | |||||||||||
| Millions of dollars | 2023 | 2022 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,271 | $ | 381 | |||||||
| Adjustments to reconcile net income to cash flows from operating activities: | |||||||||||
| Depreciation, depletion, and amortization | 486 | 470 | |||||||||
| Impairments and other charges | — | 366 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | (337) | (930) | |||||||||
| Inventories | (318) | (371) | |||||||||
| Accounts payable | 66 | 491 | |||||||||
| Other operating activities | 6 | (81) | |||||||||
| Total cash flows provided by operating activities | 1,174 | 326 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (571) | (410) | |||||||||
| Purchases of investment securities | (270) | (10) | |||||||||
| Sales of investment securities | 103 | — | |||||||||
| Proceeds from sales of property, plant, and equipment | 90 | 116 | |||||||||
| Other investing activities | (48) | (44) | |||||||||
| Total cash flows used in investing activities | (696) | (348) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Stock repurchase program | (348) | — | |||||||||
| Dividends to shareholders | (289) | (217) | |||||||||
| Payments on long-term borrowings | — | (642) | |||||||||
| Other financing activities | (7) | 116 | |||||||||
| Total cash flows used in financing activities | (644) | (743) | |||||||||
| Effect of exchange rate changes on cash | (75) | (53) | |||||||||
| Decrease in cash and equivalents | (241) | (818) | |||||||||
| Cash and equivalents at beginning of period | 2,346 | 3,044 | |||||||||
| Cash and equivalents at end of period | $ | 2,105 | $ | 2,226 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash payments during the period for: | |||||||||||
| Interest | $ | 228 | $ | 244 | |||||||
| Income taxes | $ | 388 | $ | 190 | |||||||
| See notes to condensed consolidated financial statements. | |||||||||||
HAL Q2 2023 FORM 10-Q | 4
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
HALLIBURTON COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our 2022 Annual Report on Form 10-K.
Our accounting policies are in accordance with United States generally accepted accounting principles. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect:
•the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and
•the reported amounts of revenue and expenses during the reporting period.
Ultimate results could differ from our estimates.
In our opinion, the condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of June 30, 2023 and the results of our operations for the three and six months ended June 30, 2023 and 2022, and our cash flows for the six months ended June 30, 2023 and 2022. Such adjustments are of a normal recurring nature. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation.
The results of our operations for the three and six months ended June 30, 2023 may not be indicative of results for the full year.
Note 2. Business Segment Information
We operate under two divisions, which form the basis for the two operating segments we report: the Completion and Production segment and the Drilling and Evaluation segment. Our equity in earnings and losses of unconsolidated affiliates that are accounted for using the equity method of accounting are included within cost of services and cost of sales on our statements of operations, which is part of operating income of the applicable segment.
HAL Q2 2023 FORM 10-Q | 5
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
The following table presents information on our business segments.
| Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||
| Millions of dollars | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | |||||||||||||||||
| Completion and Production | $ | 3,476 | $ | 2,911 | $ | 6,885 | $ | 5,264 | |||||||||
| Drilling and Evaluation | 2,322 | 2,163 | 4,590 | 4,094 | |||||||||||||
| Total revenue | $ | 5,798 | $ | 5,074 | $ | 11,475 | $ | 9,358 | |||||||||
| Operating income: | |||||||||||||||||
| Completion and Production | $ | 707 | $ | 499 | $ | 1,373 | $ | 795 | |||||||||
| Drilling and Evaluation | 376 | 286 | 745 | 580 | |||||||||||||
| Total operations | 1,083 | 785 | 2,118 | 1,375 | |||||||||||||
| Corporate and other (a) | (59) | (67) | (117) | (124) | |||||||||||||
| SAP S4 upgrade expense | (13) | — | (13) | — | |||||||||||||
| Impairments and other charges (b) | — | (344) | — | (366) | |||||||||||||
| Total operating income | $ | 1,011 | $ | 374 | $ | 1,988 | $ | 885 | |||||||||
| Interest expense, net of interest income | (92) | (101) | (171) | (208) | |||||||||||||
| Loss on Blue Chip Swap transactions (c) | (104) | — | (104) | — | |||||||||||||
| Loss on early extinguishment of debt | — | — | — | (42) | |||||||||||||
| Other, net | (32) | (42) | (101) | (72) | |||||||||||||
| Income before income taxes | $ | 783 | $ | 231 | $ | 1,612 | $ | 563 | |||||||||
| (a) | Includes certain expenses not attributable to a business segment, such as costs related to support functions, corporate executives, and operating lease assets, and also includes amortization expense associated with intangible assets recorded as a result of acquisitions. | ||||||||||||||||
| (b) | For the three and six months ended June 30, 2022 respectively, the amounts include $131 million and $136 million charges attributable to Completions and Production, and $178 million and $195 million charges attributable to Drilling and Evaluation. Both periods include a $35 million charge attributable to Corporate and other. | ||||||||||||||||
| (c) | The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. Our execution of certain trades, known as Blue Chip Swaps, which effectively results in a parallel U.S. dollar exchange rate, resulted in a $104 million pre-tax loss during the second quarter of 2023. | ||||||||||||||||
Note 3. Revenue
Revenue is recognized based on the transfer of control or our customers' ability to benefit from our services and products in an amount that reflects the consideration we expect to receive in exchange for those services and products. Most of our service and product contracts are short-term in nature. In recognizing revenue for our services and products, we determine the transaction price of purchase orders or contracts with our customers, which may consist of fixed and variable consideration. We also assess our customers' ability and intention to pay, which is based on a variety of factors, including our historical payment experience with, and the financial condition of, our customers. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 20 to 60 days. Other judgments involved in recognizing revenue include an assessment of progress towards completion of performance obligations for certain long-term contracts, which involve estimating total costs to determine our progress towards contract completion and calculating the corresponding amount of revenue to recognize.
Disaggregation of revenue
We disaggregate revenue from contracts with customers into types of services or products, consistent with our two reportable segments, in addition to geographical area. Based on the location of services provided and products sold, 46% and 44% of our consolidated revenue was from the United States for the six months ended June 30, 2023 and 2022, respectively. No other country accounted for more than 10% of our revenue.
HAL Q2 2023 FORM 10-Q | 6
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
The following table presents information on our disaggregated revenue.
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
| Millions of dollars | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Revenue by segment: | ||||||||||||||
| Completion and Production | $ | 3,476 | $ | 2,911 | $ | 6,885 | $ | 5,264 | ||||||
| Drilling and Evaluation | 2,322 | 2,163 | 4,590 | 4,094 | ||||||||||
| Total revenue | $ | 5,798 | $ | 5,074 | $ | 11,475 | $ | 9,358 | ||||||
| Revenue by geographic region: | ||||||||||||||
| North America | $ | 2,696 | $ | 2,426 | $ | 5,461 | $ | 4,351 | ||||||
| Latin America | 994 | 758 | 1,909 | 1,411 | ||||||||||
| Europe/Africa/CIS | 698 | 718 | 1,360 | 1,395 | ||||||||||
| Middle East/Asia | 1,410 | 1,172 | 2,745 | 2,201 | ||||||||||
| Total revenue | $ | 5,798 | $ | 5,074 | $ | 11,475 | $ | 9,358 | ||||||
Contract balances
We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of receivables and deferred revenue. Deferred revenue represents advance consideration received from customers for contracts where revenue is recognized on future performance of service. Deferred revenue, as well as revenue recognized during the period relating to amounts included as deferred revenue at the beginning of the period, was not material to our condensed consolidated financial statements.
Transaction price allocated to remaining performance obligations
Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less. We have some long-term contracts related to software and integrated project management services such as lump sum turnkey contracts. For software contracts, revenue is generally recognized over time throughout the license period when the software is considered to be a right to access our intellectual property. For lump sum turnkey projects, we recognize revenue over time using an input method, which requires us to exercise judgment. Revenue allocated to remaining performance obligations for these long-term contracts is not material.
Receivables
As of June 30, 2023, 35% of our net trade receivables were from customers in the United States and 11% were from customers in Mexico. As of December 31, 2022, 38% of our net trade receivables were from customers in the United States and 11% were from customers in Mexico. Receivables from our primary customer in Mexico accounted for approximately 9% of our total receivables as of June 30, 2023 and December 31, 2022. While we have experienced payment delays from our primary customer in Mexico, the 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. No other country or single customer accounted for more than 10% of our net trade receivables at those dates.
We have risk of delayed customer payments and payment defaults associated with customer liquidity issues. We routinely monitor the financial stability of our customers and employ an extensive process to evaluate the collectability of outstanding receivables. This process, which involves a high degree of judgment utilizing significant assumptions, includes analysis of our customers’ historical time to pay, financial condition and various financial metrics, debt structure, credit ratings, and production profile, as well as political and economic factors in countries of operations and other customer-specific factors.
HAL Q2 2023 FORM 10-Q | 7
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
Note 4. Inventories
Inventories consisted of the following:
| Millions of dollars | June 30, 2023 | December 31, 2022 | ||||||
| Finished products and parts | $ | 2,075 | $ | 1,859 | ||||
| Raw materials and supplies | 1,037 | 953 | ||||||
| Work in process | 129 | 111 | ||||||
| Total inventories | $ | 3,241 | $ | 2,923 | ||||
Note 5. Accounts Payable
Effective January 1, 2023, we adopted new supplier finance program disclosure requirements contained in guidance issued by the Financial Accounting Standards Board (ASU 2022-04, "Disclosure of Supplier Finance Program Obligations"), other than the roll-forward disclosure, which we will adopt at the beginning of 2024.
We have agreements with third parties that allow our participating suppliers to finance payment obligations from us with designated third-party financial institutions who act as our paying agent. We have generally extended our payment terms with suppliers to 90 days. A participating supplier may request a participating financial institution to finance one or more of our payment obligations to such supplier prior to the scheduled due date thereof at a discounted price. We are not required to provide collateral to the financial institutions.
Our obligations to participating suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to finance amounts due under these financing arrangements. Our outstanding payment obligations under these agreements were $324 million as of June 30, 2023, and $273 million as of December 31, 2022, and are included in accounts payable on the condensed consolidated balance sheets.
Note 6. Income Taxes
During the three months ended June 30, 2023, we recorded a total income tax provision of $167 million on a pre-tax income of $783 million, resulting in an effective tax rate of 21.3% for the quarter. During the three months ended June 30, 2022, we recorded a total income tax provision of $114 million on a pre-tax income of $231 million, resulting in an effective tax rate of 49.3% for the quarter. The effective tax rate for the three months ended June 30, 2023 was lower than the three months ended June 30, 2022 primarily due to the impact on our effective tax rate for the second quarter of 2022 of the decision to sell our Russian operations and a corresponding increase in the valuation allowance on foreign tax credits.
During the six months ended June 30, 2023, we recorded a total income tax provision of $341 million on a pre-tax income of $1.6 billion, resulting in an effective tax rate of 21.1% for the period. During the six months ended June 30, 2022, we recorded a total income tax provision of $182 million on a pre-tax income of $563 million, resulting in an effective tax rate of 32.2% for the period. The effective tax rate for the six months ended June 30, 2023 was lower than the six months ended June 30, 2022 primarily due to the impact on our effective tax rate for the first six months of 2022 of the decision to sell our Russian operations and a corresponding increase in the valuation allowance on foreign tax credits.
HAL Q2 2023 FORM 10-Q | 8
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
Note 7. Shareholders’ Equity
The following tables summarize our shareholders’ equity activity for the three and six months ended June 30, 2023 and June 30, 2022, respectively:
| Millions of dollars | Common Stock | Paid-in Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest in Consolidated Subsidiaries | Total | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 2,664 | $ | 50 | $ | (5,108) | $ | 10,572 | $ | (230) | $ | 29 | $ | 7,977 | ||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||
| Net income | — | — | — | 651 | — | 4 | 655 | |||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1 | — | 1 | |||||||||||||||||||
Cash dividends ($0.16 per share) | — | — | — | (145) | — | — | (145) | |||||||||||||||||||
| Stock repurchase program | — | — | (100) | — | — | — | (100) | |||||||||||||||||||
| Stock plans (a) | — | (50) | 113 | (3) | — | — | 60 | |||||||||||||||||||
| Other | — | — | — | — | — | (3) | (3) | |||||||||||||||||||
| Balance at March 31, 2023 | $ | 2,664 | $ | — | $ | (5,095) | $ | 11,075 | $ | (229) | $ | 30 | $ | 8,445 | ||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||
| Net income | — | — | — | 610 | — | 6 | 616 | |||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1 | — | 1 | |||||||||||||||||||
Cash dividends ($0.16 per share) | — | — | — | (144) | — | — | (144) | |||||||||||||||||||
| Stock repurchase program | — | — | (250) | — | — | — | (250) | |||||||||||||||||||
| Stock plans (a) | (1) | — | 144 | (82) | — | — | 61 | |||||||||||||||||||
| Other | — | — | — | — | — | (2) | (2) | |||||||||||||||||||
| Balance at June 30, 2023 | $ | 2,663 | $ | — | $ | (5,201) | $ | 11,459 | $ | (228) | $ | 34 | $ | 8,727 | ||||||||||||
| (a) | In the first quarter and second quarter of 2023, we issued common stock from treasury shares for stock options exercised, restricted stock grants, and purchases under our employee stock purchase plan. As a result, additional paid in capital was reduced to zero as of the end of each period, which resulted in a reduction of retained earnings by $3 million and $82 million, respectively. Future issuances from treasury shares could similarly impact additional paid in capital and retained earnings. | |||||||||||||||||||||||||
| Millions of dollars | Common Stock | Paid-in Capital in Excess of Par Value | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest in Consolidated Subsidiaries | Total | |||||||||||||||||||
| Balance at December 31, 2021 | $ | 2,665 | $ | 32 | $ | (5,511) | $ | 9,710 | $ | (183) | $ | 15 | $ | 6,728 | ||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||
| Net income | — | — | — | 263 | — | 1 | 264 | |||||||||||||||||||
| Other comprehensive income | — | — | — | — | 5 | — | 5 | |||||||||||||||||||
Cash dividends ($0.12 per share) | — | — | — | (108) | — | — | (108) | |||||||||||||||||||
| Stock plans (a) | — | (32) | 261 | (85) | — | — | 144 | |||||||||||||||||||
| Balance at March 31, 2022 | $ | 2,665 | $ | — | $ | (5,250) | $ | 9,780 | $ | (178) | $ | 16 | $ | 7,033 | ||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||||
| Net income | — | — | — | 109 | — | 8 | 117 | |||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (1) | — | (1) | |||||||||||||||||||
Cash dividends ($0.12 per share) | — | — | — | (109) | — | — | (109) | |||||||||||||||||||
| Stock plans (a) | — | — | 277 | (163) | — | — | 114 | |||||||||||||||||||
| Other | — | — | — | — | — | (6) | (6) | |||||||||||||||||||
| Balance at June 30, 2022 | $ | 2,665 | $ | — | $ | (4,973) | $ | 9,617 | $ | (179) | $ | 18 | $ | 7,148 | ||||||||||||
| (a) | In the first and second quarter of 2022, we issued common stock from treasury shares for stock options exercised, restricted stock grants and purchases under our employee stock purchase plan. As a result, additional paid in capital was reduced to zero as of the end of each period, which resulted in a reduction of retained earnings by $85 million and $163 million, respectively. Future issuances from treasury shares could similarly impact additional paid in capital and retained earnings. | |||||||||||||||||||||||||
HAL Q2 2023 FORM 10-Q | 9
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
Our Board of Directors has authorized a program to repurchase our common stock from time to time. We purchased 8.1 million shares of our common stock under the program during the three months ended June 30, 2023 for approximately $250 million. Approximately $4.5 billion remained authorized for repurchases as of June 30, 2023. From the inception of this program in February of 2006 through June 30, 2023, we repurchased approximately 242 million shares of our common stock for a total cost of approximately $9.6 billion.
Accumulated other comprehensive loss consisted of the following:
| Millions of dollars | June 30, 2023 | December 31, 2022 | |||||||||
| Cumulative translation adjustments | $ | (82) | $ | (84) | |||||||
| Defined benefit and other postretirement liability adjustments | (102) | (101) | |||||||||
| Other | (44) | (45) | |||||||||
| Total accumulated other comprehensive loss | $ | (228) | $ | (230) | |||||||
Note 8. Commitments and Contingencies
The Company is subject to various legal or governmental proceedings, claims or investigations, including personal injury, property damage, environmental, intellectual property, commercial, tax, and other matters arising in the ordinary course of business, the resolution of which, in the opinion of management, will not have a material adverse effect on our consolidated results of operations or consolidated financial position. There is inherent risk in any legal or governmental proceeding, claim or investigation, and no assurance can be given as to the outcome of these proceedings.
Guarantee arrangements
In the normal course of business, we have in place agreements with financial institutions under which approximately $2.2 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2023. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization. None of these off-balance sheet arrangements either has, or is likely to have, a material effect on our condensed consolidated financial statements.
Note 9. Income per Share
Basic income or loss per share is based on the weighted average number of common shares outstanding during the period. Diluted income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. Antidilutive securities represent potentially dilutive securities which are excluded from the computation of diluted income or loss per share as their impact was antidilutive.
A reconciliation of the number of shares used for the basic and diluted income per share computations is as follows:
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
| Millions of shares | 2023 | 2022 | 2023 | 2022 | ||||||||||
| Basic weighted average common shares outstanding | 901 | 904 | 902 | 902 | ||||||||||
| Dilutive effect of awards granted under our stock incentive plans | 2 | 5 | 3 | 4 | ||||||||||
| Diluted weighted average common shares outstanding | 903 | 909 | 905 | 906 | ||||||||||
| Antidilutive shares: | ||||||||||||||
| Options with exercise price greater than the average market price | 13 | 14 | 14 | 15 | ||||||||||
| Total antidilutive shares | 13 | 14 | 14 | 15 | ||||||||||
HAL Q2 2023 FORM 10-Q | 10
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements | |||||
Note 10. Fair Value of Financial Instruments
The carrying amount of cash and equivalents, receivables, and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities of these instruments.
The carrying amount and fair value of our total debt, including short-term borrowings and current maturities of long-term debt, is as follows:
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| Millions of dollars | Level 1 | Level 2 | Total fair value | Carrying value | Level 1 | Level 2 | Total fair value | Carrying value | |||||||||||||||||||||
| Total debt | $ | 7,221 | $ | 422 | $ | 7,643 | $ | 7,931 | $ | 6,539 | $ | 917 | $ | 7,456 | $ | 7,928 | |||||||||||||
In the first half of 2023, the fair value of our debt increased as a result of lower debt yields.
Our debt categorized within level 1 on the fair value hierarchy is calculated using quoted prices in active markets for identical liabilities with transactions occurring on the last two days of period-end. Our debt categorized within level 2 on the fair value hierarchy is calculated using significant observable inputs for similar liabilities where estimated values are determined from observable data points on our other bonds and on other similarly rated corporate debt or from observable data points of transactions occurring prior to two days from period-end and adjusting for changes in market conditions. Differences between the periods presented in our level 1 and level 2 classification of our long-term debt relate to the timing of when third party market transactions on our debt are executed. We have no debt categorized within level 3 on the fair value hierarchy.
HAL Q2 2023 FORM 10-Q | 11
| Part I. Item 2 | Executive Overview | ||||||||
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.
•Completion and Production delivers cementing, stimulation, intervention, pressure control, artificial lift, specialty chemicals, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Artificial Lift, Multi-Chem, and Pipeline and Process Services.
•Drilling and Evaluation provides field and reservoir modeling, drilling, fluids, 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 47,000 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:
- International: Allocate our capital to the highest return opportunities and increase our international growth in both onshore and offshore markets.
- North America: Drive better pricing, increased efficiency, and higher margin through utilization of our automated and intelligent fracturing technologies and increased market penetration of our premium low-emissions electronic fracturing equipment.
- Digital: Continue to drive differentiation and efficiencies through the deployment and integration of digital and automation technologies, both internally and for our customers.
- Capital efficiency: Maintain our capital expenditures in the range of 5-6% of revenue while focusing on technological advancements and process changes that reduce our manufacturing and maintenance costs and improve how we move equipment and respond to market opportunities.
- Sustainability and energy mix transition: Continue to:
• Leverage the increasing number of participants in and scope of Halliburton Labs to gain insight into developing value chains in the energy mix transition;
• Develop and deploy solutions to help oil and gas operators lower their emissions while also using our existing technologies in renewable energy applications;
• Develop technologies and solutions to lower our own emissions; and
• Grow our participation in the entire life cycle of carbon capture and storage, hydrogen, and geothermal projects globally.
The following charts depict the revenue split between our two operating segments and our four primary geographic regions for the quarter ended June 30, 2023.
HAL Q2 2023 FORM 10-Q | 12
| Part I. Item 2 | Executive Overview | ||||||||
Market conditions
Commodity price volatility continued during the second quarter of 2023 driven by inflationary pressures, changes to OPEC+ production levels, supply chain shortages, demand uncertainty, recessionary fears, and geopolitical conflicts. On June 4, 2023, Saudi Arabia announced it would reduce July production by 1 million barrels per day. On July 3, 2023, Saudi Arabia announced that reduction would extend through August 2023. During the second quarter of 2023, the West Texas Intermediate (WTI) crude oil price averaged approximately $74 per barrel and the Brent crude oil price averaged approximately $78 per barrel. Both of these prices were well below the average price per barrel for 2022. The average Henry Hub natural gas price during the second quarter was $2.16 per million BTU, which is also well below the average price during 2022. While U.S. land rig counts increased in 2022, there has been a decline in the rig count during the second quarter of 2023. These factors contributed to softness in the market for energy services generally in North America and particularly in gas basins during the second quarter of 2023. The United States Energy Information Administration (EIA)'s July 2023 forecast has Brent crude oil spot price averaging $78 per barrel for the third quarter of 2023 and increasing to approximately $80 per barrel in the fourth quarter of 2023.
Globally, we continue to be impacted by increased supply chain lead times for the supply of select raw materials. We monitor market trends and work to mitigate cost impacts through economies of scale in global procurement, technology modifications, and efficient sourcing practices. Also, while we have been impacted by inflationary cost increases, primarily related to chemicals, cement, and logistics costs, we generally try to pass much of those increases on to our customers and we believe we have effective solutions to minimize the operational impact.
Financial results
The following graph illustrates our revenue and operating margins for each operating segment for the second quarter of 2022 and 2023.
HAL Q2 2023 FORM 10-Q | 13
| Part I. Item 2 | Executive Overview | ||||||||
During the second quarter of 2023, we generated total company revenue of $5.8 billion, a 14% increase as compared to the second quarter of 2022. We reported operating income of $1.0 billion during the second quarter of 2023 compared to operating income of $374 million during the second quarter of 2022, which included the effects of $344 million of impairments and other charges related to our decision to market for sale our Russia operations. Our Completion and Production segment revenue increased 19% in the second quarter of 2023 as compared to the second quarter of 2022, primarily due to increased pressure pumping services in North America land as well as higher completion tool sales and artificial lift activity globally. Our Drilling and Evaluation segment revenue increased 7% in the second quarter of 2023 as compared to the second quarter of 2022, driven primarily by improvements in drilling-related services globally and wireline activity in the Middle East/Asia region. Both segment results were negatively impacted in the second quarter of 2023 when compared to the second quarter of 2022, as a result of the sale of our Russian operations during the third quarter of 2022.
In North America, our revenue increased 11% in the second quarter of 2023, as compared to the second quarter of 2022, driven by improved stimulation activity and pricing gains and higher artificial lift activity in North America land, in addition to increased drilling-related services across the region. The North America average rig count increased 1% in the second quarter of 2023 as compared to the second quarter of 2022.
Internationally, revenue increased 17% in the second quarter of 2023, as compared to the second quarter of 2022, primarily driven by improved drilling-related services, higher completion tool sales, and increased pressure pumping services across the regions, partially offset by the sale of our Russian operations during the third quarter of 2022. The international average rig count increased 18% in the second quarter of 2023 as compared to the second quarter of 2022.
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 decarbonize both our and our customers' operations. This includes the continued development and deployment of solutions designed to help oil and gas operators lower their environmental impact while also using our existing technologies in sustainable energy applications.
Halliburton Labs, our clean energy accelerator, continues to provide us insight into developing value chains in the energy mix transition and opportunities to assist early stage companies to enable them to achieve scaling milestones. Halliburton Labs has 25 participants and alumni as of the end of the second quarter of 2023.
Our operating performance and liquidity are described in more detail in "Liquidity and Capital Resources" and “Business Environment and Results of Operations.”
HAL Q2 2023 FORM 10-Q | 14
| Part I. Item 2 | Liquidity and Capital Resources | ||||||||
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2023, we had $2.1 billion of cash and equivalents, compared to $2.3 billion of cash and equivalents at December 31, 2022.
Significant sources and uses of cash during the first six months of 2023
Sources of cash:
•Cash flows from operating activities were $1.2 billion. This included a negative impact from the primary components of our working capital (receivables, inventories, and accounts payable) of a net $589 million, primarily associated with increased receivables and inventory.
Uses of cash:
•Capital expenditures were $571 million.
•We paid $348 million for the repurchase of 11 million shares of our common stock.
•We paid $289 million of dividends to our shareholders.
Future sources and uses of cash
We manufacture most of our own equipment, which provides us with some flexibility to increase or decrease our capital expenditures based on market conditions. We currently expect capital spending for 2023 to be within our target of approximately 5-6% of revenue. We believe this level of spend will allow us to invest in our key strategic areas. However, we will continue to maintain capital discipline and monitor the rapidly changing market dynamics, and we may adjust our capital spend accordingly.
While we maintain focus on liquidity and debt reduction, we are also focused on providing cash returns to our shareholders. Our quarterly dividend rate is $0.16 per common share, or approximately $144 million. In January of 2023, our Board of Directors approved a capital return framework with a goal of returning at least 50% of our annual free cash flow to shareholders through dividends and share repurchases and we expect our returns to shareholders will be in line with our capital return framework for 2023.
We may utilize share repurchases as part of our capital return framework. Our Board of Directors has authorized a program to repurchase our common stock from time to time. Repurchases of 8.1 million shares of common stock occurred during the second quarter of 2023 under this program. Approximately $4.5 billion remained authorized for repurchases as of June 30, 2023 and may be used for open market and other share purchases.
During the second quarter, Halliburton kicked off its migration to SAP S4. The total project investment is estimated to cost approximately $250 million over the next two and a half years. This new system will provide important efficiency benefits, cost savings, visibility to our operations, and advanced analytics that will benefit Halliburton and its customers.
Other factors affecting liquidity
Financial position in current market. As of June 30, 2023, we had $2.1 billion of cash and equivalents and $3.5 billion of available committed bank credit under a revolving credit facility with an expiration date of April 27, 2027. We believe we have a manageable debt maturity profile, with approximately $500 million coming due beginning in 2025 through 2027. 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, shareholder returns, if any, and contingent liabilities.
Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $2.2 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2023. 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. As of June 30, 2023, we had no material off-balance sheet liabilities and were not required to make any material cash distributions to our unconsolidated subsidiaries.
HAL Q2 2023 FORM 10-Q | 15
| Part I. Item 2 | Liquidity and Capital Resources | ||||||||
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 stable 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.
Receivables from our primary customer in Mexico accounted for approximately 9% of our total receivables as of June 30, 2023. While we have experienced payment delays from our primary customer in Mexico, the 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 Q2 2023 FORM 10-Q | 16
| 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 six months of 2023, based upon the location of the services provided and products sold, 46% of our consolidated revenue was from the United States, compared to 44% of our consolidated revenue from the United States in the first six months of 2022. No other country accounted for more than 10% of our revenue.
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 capital, government regulation, and global stability, which together drive worldwide drilling and completions activity. Additionally, during 2023, we generally expect that many of our customers in North America will continue their strategy of operating within their cash flows and generating returns rather than prioritizing production growth. 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 table below shows the average prices for WTI crude oil, United Kingdom Brent crude oil, and Henry Hub natural gas.
| Three Months Ended June 30 | Year Ended December 31 | |||||||||||||
| 2023 | 2022 | 2022 | ||||||||||||
Oil price - WTI (1) | $ | 73.76 | $ | 108.72 | $ | 96.04 | ||||||||
Oil price - Brent (1) | 78.32 | 113.54 | 100.78 | |||||||||||
Natural gas price - Henry Hub (2) | 2.16 | 7.48 | 6.45 | |||||||||||
| (1) | Oil price measured in dollars per barrel. | |||||||||||||
| (2) | Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu. | |||||||||||||
The historical average rig counts based on the weekly Baker Hughes rig count data were as follows:
| Three Months Ended June 30 | Six Months Ended June 30 | Year Ended December 31 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2022 | |||||||||||||
| U.S. Land | 699 | 698 | 722 | 660 | 708 | ||||||||||||
| U.S. Offshore | 20 | 15 | 18 | 15 | 15 | ||||||||||||
| Canada | 117 | 113 | 169 | 155 | 175 | ||||||||||||
| North America | 836 | 826 | 909 | 830 | 898 | ||||||||||||
| International | 959 | 816 | 937 | 819 | 851 | ||||||||||||
| Worldwide total | 1,795 | 1,642 | 1,846 | 1,649 | 1,749 | ||||||||||||
HAL Q2 2023 FORM 10-Q | 17
| Part I. Item 2 | Business Environment and Results of Operations | ||||||||
Business outlook
According to the United States Energy Information Administration (EIA) July 2023 "Short Term Energy Outlook", the Brent spot price is expected to average $78 per barrel for the third quarter of 2023, with an expected full year 2023 average of $79 per barrel, a decline of approximately $22 per barrel, or 22%, as compared to the full year 2022 average. According to the EIA, WTI prices are expected to average $73 per barrel in the third quarter of 2023 and to average $74 per barrel for the full year 2023, resulting in a decrease of approximately $21 per barrel, or 22%, compared to the full year 2022.
The EIA July 2023 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.63 per MMBtu during the third quarter of 2023, and to average $2.62 per MMBtu for the full year 2023, resulting in a decrease of $3.83 per MMBtu, or 59%, compared to the full year 2022.
Per the International Energy Agency (IEA) July 2023 "Oil Market Report", the forecasted global oil demand is set to average 102.1 million barrels per day in 2023, an approximate 2 million barrels per day increase from 2022. The EIA projects crude oil production in the United States will average 12.56 million barrels per day in 2023, an approximate 6% increase from the average 11.89 million barrels per day in 2022.
We continue to expect that oil and gas demand will grow over the next several years, despite the actions taken by central banks in an attempt to control inflation by increasing interest rates and the resulting concern about a potential economic slowdown. We believe the demand will be driven by economic expansion, energy security concerns, and population growth. Oil and gas continues to demonstrate its critical role in the global economy and meeting long term demand requires sustained capital investment. We believe many years of increased investment in existing and new sources of production is the only solution to increase supply and that production will be needed from conventional and unconventional, deep-water and shallow-water, and short and long-cycle projects.
Despite the softness in the market for energy services in North America during the first six months of the year as discussed above, we expect upstream spending to grow in 2023, with international and North America upstream spending growth in the high teens and around 10%, respectively, compared to 2022. We anticipate overall upstream market activity in North America in the second half of 2023 to be slightly lower than in the first half. Our international business is growing at a strong pace across all regions, and we expect our differentiated technology offerings, selective contract wins, and our unique collaborative approach to working with our customers, to deliver profitable growth.
HAL Q2 2023 FORM 10-Q | 18
Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (QTD) | |||||
RESULTS OF OPERATIONS IN 2023 COMPARED TO 2022
Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022
| Three Months Ended June 30 | Favorable | Percentage | ||||||||||||
| Millions of dollars | 2023 | 2022 | (Unfavorable) | Change | ||||||||||
| Revenue: | ||||||||||||||
| By operating segment: | ||||||||||||||
| Completion and Production | $ | 3,476 | $ | 2,911 | $ | 565 | 19 | % | ||||||
| Drilling and Evaluation | 2,322 | 2,163 | 159 | 7 | ||||||||||
| Total revenue | $ | 5,798 | $ | 5,074 | $ | 724 | 14 | % | ||||||
| By geographic region: | ||||||||||||||
| North America | $ | 2,696 | $ | 2,426 | $ | 270 | 11 | % | ||||||
| Latin America | 994 | 758 | 236 | 31 | ||||||||||
| Europe/Africa/CIS | 698 | 718 | (20) | (3) | ||||||||||
| Middle East/Asia | 1,410 | 1,172 | 238 | 20 | ||||||||||
| Total revenue | $ | 5,798 | $ | 5,074 | $ | 724 | 14 | % | ||||||
| Operating income: | ||||||||||||||
| By operating segment: | ||||||||||||||
| Completion and Production | $ | 707 | $ | 499 | $ | 208 | 42 | % | ||||||
| Drilling and Evaluation | 376 | 286 | 90 | 31 | ||||||||||
| Total operations | 1,083 | 785 | 298 | 38 | ||||||||||
| Corporate and other | (59) | (67) | 8 | 12 | % | |||||||||
| SAP S4 upgrade expense | (13) | — | (13) | n/m | ||||||||||
| Impairments and other charges | — | (344) | 344 | n/m | ||||||||||
| Total operating income | $ | 1,011 | $ | 374 | $ | 637 | 170 | % | ||||||
| n/m = not meaningful | ||||||||||||||
Operating Segments
Completion and Production
Completion and Production revenue in the second quarter of 2023 was $3.5 billion, an increase of $565 million, or 19%, when compared to the second quarter of 2022. Operating income in the second quarter of 2023 was $707 million, an increase of $208 million, or 42%, when compared to the second quarter of 2022. These results were driven by increased pressure pumping services and artificial lift activity in North America land along with higher completion sales globally. These improvements were partially offset by reduced well intervention services in North America land.
Drilling and Evaluation
Drilling and Evaluation revenue in the second quarter of 2023 was $2.3 billion, an increase of $159 million, or 7%, when compared to the second quarter of 2022. Operating income in the second quarter of 2023 was $376 million, an increase of $90 million, or 31%, when compared to the second quarter of 2022. These results were due to an increase in drilling-related services globally and higher wireline activity in the Middle East. Partially offsetting these improvements was lower project management activity in Saudi Arabia, Colombia, and Ecuador.
Both segments' results were negatively impacted in the second quarter of 2023 when compared to the second quarter of 2022, as a result of the sale of our Russian operations during the third quarter of 2022.
HAL Q2 2023 FORM 10-Q | 19
Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (QTD) | |||||
Geographic Regions
North America
North America revenue in the second quarter of 2023 was $2.7 billion, an 11% increase compared to the second quarter of 2022. This increase was primarily driven by improved stimulation activity and pricing gains, mainly in North America land, higher completion tool sales and drilling-related services across the region, improved artificial lift and cementing activity, and increased well intervention services in the U.S. Gulf of Mexico. Partially offsetting these improvements were decreased well intervention services in North America land and decreased pressure pumping services in Canada.
Latin America
Latin America revenue in the second quarter of 2023 was $994 million, a 31% increase compared to the second quarter of 2022, due to increased well construction services, project management activity, and software sales in Mexico, along with higher completion tool sales, testing services, and wireline activity across the region, and improved pressure pumping and drilling-related services in Argentina. Partially offsetting these improvements were lower project management activity and drilling-related services in Colombia and Ecuador.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the second quarter of 2023 was $698 million, a 3% decrease compared to the second quarter of 2022. This decline was primarily driven by the sale of our Russian operations during the third quarter of 2022, in addition to reduced activity across multiple product service lines in Norway. These decreases were partially offset by improved well construction services in Africa, and higher completion tool sales, pressure pumping services, and fluids services across the region.
Middle East/Asia
Middle East/Asia revenue in the second quarter of 2023 was $1.4 billion, a 20% increase compared to the second quarter of 2022, resulting from improved drilling-related services, higher completion tool sales, increased stimulation activity, and increased wireline services across the region, in addition to improved project management activity in Iraq and Kuwait. Partially offsetting these improvements were lower project management activity in Saudi Arabia and reduced well construction services in Australia.
Other Operating Items
SAP S4 Upgrade Expense. During the second quarter of 2023, Halliburton kicked off its migration to SAP S4 which will take place over the next two and a half years. This new system will provide important efficiency benefits, cost savings, enhanced visibility to our operations, and advanced analytics that will benefit Halliburton and its customers. We expect this upgrade to payback in three years after an investment of $250 million. For the second quarter of 2023, we recognized expense of $13 million on the migration.
Impairments and other charges. During the three months ended June 30, 2022, we recognized a pre-tax charge of $344 million, related to the write down of all our net assets in Russia as a result of our decision to market our Russia operations for sale due to the additional sanctions enacted against Russia arising from the conflict in Ukraine.
Nonoperating Items
Argentina Blue Chip Swap. The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. The execution of certain trades known as Blue Chip Swaps, effectively results in a parallel U.S. dollar exchange rate. This parallel rate, which cannot be used as the basis to remeasure our net monetary assets in U.S. dollars under U.S. GAAP, was 101% higher than Argentina's official exchange rate at June 30, 2023. During the three months ended June 30, 2023, we entered into Blue Chip Swap transactions, which resulted in a $104 million pre-tax loss on investment.
Effective tax rate. During the three months ended June 30, 2023, we recorded a total income tax provision of $167 million on a pre-tax income of $783 million, resulting in an effective tax rate of 21.3% for the quarter. During the three months ended June 30, 2022, we recorded a total income tax provision of $114 million on a pre-tax income of $231 million, resulting in an effective tax rate of 49.3% for the quarter. The effective tax rate for the three months ended June 30, 2023 was lower than the three months ended June 30, 2022 primarily due to the impact on our effective tax rate for the second quarter of 2022 of our decision to sell our Russian operations and a corresponding increase in the valuation allowance on foreign tax credits.
HAL Q2 2023 FORM 10-Q | 20
| Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (YTD) | |||||
Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022
| Six Months Ended June 30 | Favorable | Percentage | ||||||||||||
| Millions of dollars | 2023 | 2022 | (Unfavorable) | Change | ||||||||||
| Revenue: | ||||||||||||||
| By operating segment: | ||||||||||||||
| Completion and Production | $ | 6,885 | $ | 5,264 | $ | 1,621 | 31 | % | ||||||
| Drilling and Evaluation | 4,590 | 4,094 | 496 | 12 | ||||||||||
| Total revenue | $ | 11,475 | $ | 9,358 | $ | 2,117 | 23 | % | ||||||
| By geographic region: | ||||||||||||||
| North America | $ | 5,461 | $ | 4,351 | $ | 1,110 | 26 | % | ||||||
| Latin America | 1,909 | 1,411 | 498 | 35 | ||||||||||
| Europe/Africa/CIS | 1,360 | 1,395 | (35) | (3) | ||||||||||
| Middle East/Asia | 2,745 | 2,201 | 544 | 25 | ||||||||||
| Total revenue | $ | 11,475 | $ | 9,358 | $ | 2,117 | 23 | % | ||||||
| Operating income: | ||||||||||||||
| By operating segment: | ||||||||||||||
| Completion and Production | $ | 1,373 | $ | 795 | $ | 578 | 73 | % | ||||||
| Drilling and Evaluation | 745 | 580 | 165 | 28 | ||||||||||
| Total operations | $ | 2,118 | $ | 1,375 | $ | 743 | 54 | |||||||
| Corporate and other | (117) | (124) | 7 | 6 | % | |||||||||
| SAP S4 upgrade expense | (13) | — | (13) | n/m | ||||||||||
| Impairments and other charges | — | (366) | 366 | n/m | ||||||||||
| Total operating income | $ | 1,988 | $ | 885 | $ | 1,103 | 125 | % | ||||||
| n/m = not meaningful | ||||||||||||||
Operating Segments
Completion and Production
Completion and Production revenue in the first six months of 2023 was $6.9 billion, an increase of $1.6 billion, or 31%, compared to the first six months of 2022. Operating income for the segment in the first six months of 2023 was $1.4 billion, an increase of $578 million, or 73%, compared to the first six months of 2022. These results were primarily driven by higher utilization and pricing for pressure pumping services in North America land and Mexico and higher completion tool sales in Brazil, U.S. Gulf of Mexico, and Saudi Arabia. Also improving were artificial lift activity in North America land and Kuwait and well intervention services in the U.S. Gulf of Mexico and Saudi Arabia. Partially offsetting these improvements were lower completion tool sales in Norway.
Drilling and Evaluation
Drilling and Evaluation revenue in the first six months of 2023 was $4.6 billion, an increase of $496 million, or 12%, compared to the first six months of 2022. Operating income for the segment in the first six months of 2023 was $745 million, an increase of $165 million, or 28%, compared to the first six months of 2022. These results were primarily impacted by increased drilling-related services in Middle East/Asia and Mexico, higher wireline activity globally, and increased project management activity in Mexico. Increased fluid services in North America land and the U.S. Gulf of Mexico also contributed to the results. Partially offsetting these improvements was decreased project management activity in Saudi Arabia, Colombia, and Ecuador.
Both segment results were negatively impacted in the first six months of 2023 when compared to the first six months of 2022, as a result of the sale of our Russian operations during the third quarter of 2022.
HAL Q2 2023 FORM 10-Q | 21
| Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (YTD) | |||||
Geographic Regions
North America
North America revenue in the first six months of 2023 was $5.5 billion, a 26% increase compared to the first six months of 2022, largely driven by higher activity and pricing primarily associated with pressure pumping and wireline activity in North America land and the U.S. Gulf of Mexico and fluid services across the region. Improved artificial lift activity in North America land along with higher completion tool sales in the U.S. Gulf of Mexico also contributed to this increase. Partially offsetting these improvements was lower well intervention services in North America land.
Latin America
Latin America revenue in the first six months of 2023 was $1.9 billion, a 35% increase compared to the first six months of 2022, resulting primarily from improvements across multiple product service lines in Mexico, Brazil, and Argentina along with higher completion tool sales in the Caribbean. Partially offsetting these improvements was lower project management activity in Colombia and Ecuador.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the first six months of 2023 was $1.4 billion, a 3% decrease compared to the first six months of 2022. This decline was primarily driven by the sale of our Russian operations during the third quarter of 2022, in addition to lower activity across multiple product service lines in Norway and reduced drilling-related services in Azerbaijan. These declines were partially offset by increases in multiple product service lines in Angola, West Africa, and the United Kingdom combined with increased pressure pumping in Algeria and Egypt.
Middle East/Asia
Middle East/Asia revenue in the first six months of 2023 was $2.7 billion, a 25% increase compared to the first six months of 2022, resulting primarily from increased activity across multiple product service lines in Saudi Arabia, United Arab Emirates, Qatar, Indonesia, and Iraq, higher drilling services in Thailand, and improved project management activity in Kuwait. Partially offsetting these improvements was lower drilling and wireline activity in Australia.
Other Operating Items
SAP S4 Upgrade Expense. As noted above, Halliburton kicked off its migration to SAP S4 which will take place over the next two and a half years. During the six months ended June 30, 2023, we recognized expense of $13 million on the migration.
Impairments and other charges. During the six months ended June 30, 2022, we recognized a pre-tax charge of $366 million, primarily related to a $344 million write down of all our net assets in Russia as a result of our decision in the second quarter of 2022 to market our Russia operations for sale due to the additional sanctions enacted against Russia arising from the conflict in Ukraine. In the first quarter of 2022, we recognized a pre-tax charge of $22 million to write down all of our assets in Ukraine, including $16 million in receivables, due to the ongoing conflict between Russia and Ukraine.
Nonoperating Items
Argentina Blue Chip Swap. As noted above, during the six months ended June 30, 2023, we entered into Blue Chip Swap transactions, which resulted in a $104 million pre-tax loss on investment during the six-month period.
Loss on early extinguishment of debt. During the six months ended June 30, 2022, we recorded a $42 million loss on the early redemption of $600 million aggregate principal amount of our 3.8% senior notes, which included premiums and unamortized expenses.
Effective tax rate. During the six months ended June 30, 2023, we recorded a total income tax provision of $341 million on a pre-tax income of $1.6 billion, resulting in an effective tax rate of 21.1%. During the six months ended June 30, 2022, we recorded a total income tax provision of $182 million on pre-tax income of $563 million, resulting in an effective tax rate of 32.2%. The effective tax rate for the six months ended June 30, 2023 was lower than the six months ended June 30, 2022 primarily due to the impact on our effective tax rate for the first six months of 2022 of our decision to sell our Russian operations and a corresponding increase in the valuation allowance on foreign tax credits.
HAL Q2 2023 FORM 10-Q | 22
| 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 our statements and 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2022 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2022.
Item 4. Controls and Procedures
In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
HAL Q2 2023 FORM 10-Q | 23
| Part II. Item 1 | Legal Proceedings | ||||||||
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information related to Item 1. Legal Proceedings is included in Note 8 to the condensed consolidated financial statements.
Item 1(a). Risk Factors
The statements in this section describe the known material risks to our business and should be considered carefully. As of June 30, 2023, there have been no material changes in risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
HAL Q2 2023 FORM 10-Q | 24
| Part II. Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | |||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Following is a summary of our repurchases of our common stock during the three months ended June 30, 2023.
| Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Program (b) | |||||||||||||
| April 1 - 30 | 701,574 | $33.33 | 692,713 | $4,726,916,897 | |||||||||||||
| May 1 - 31 | 4,735,512 | $29.63 | 4,364,403 | $4,597,796,046 | |||||||||||||
| June 1 - 30 | 3,230,784 | $31.79 | 3,063,070 | $4,500,012,292 | |||||||||||||
| Total | 8,667,870 | $30.73 | 8,120,186 | ||||||||||||||
| (a) | Of the 8,667,870 shares purchased during the three-month period ended June 30, 2023, 547,684 were acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from vesting in restricted stock grants. These shares were not part of a publicly announced program to repurchase common stock. | ||||||||||||||||
| (b) | Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $4.5 billion remained authorized for repurchases as of June 30, 2023. From the inception of this program in February of 2006 through June 30, 2023, we repurchased approximately 242 million shares of our common stock for a total cost of approximately $9.6 billion. | ||||||||||||||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Our barite and bentonite mining operations, in support of our fluids services business, are subject to regulation by the U.S. Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this quarterly report.
Item 5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
HAL Q2 2023 FORM 10-Q | 25
| Part II. Item 6 | Exhibits | ||||||||
Item 6. Exhibits
| * | 3.1 | |||||||
| * | 10.1 | |||||||
| * | 10.2 | |||||||
| * | 31.1 | |||||||
| * | 31.2 | |||||||
| ** | 32.1 | |||||||
| ** | 32.2 | |||||||
| * | 95 | |||||||
| * | 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||
| * | 101.SCH | XBRL Taxonomy Extension Schema Document | ||||||
| * | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
| * | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||||
| * | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
| * | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||||
| * | 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||
| * | Filed with this Form 10-Q. | |||||||
| ** | Furnished with this Form 10-Q. | |||||||
HAL Q2 2023 FORM 10-Q | 26
SIGNATURES
As required by the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on behalf of the registrant by the undersigned authorized individuals.
HALLIBURTON COMPANY
| /s/ Eric J. Carre | /s/ Charles E. Geer, Jr. | ||||
| Eric J. Carre | Charles E. Geer, Jr. | ||||
| Executive Vice President and | Senior Vice President and | ||||
| Chief Financial Officer | Chief Accounting Officer | ||||
Date: July 26, 2023
HAL Q2 2023 FORM 10-Q | 27