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Halliburton’s Completion and Production segment’s operating income

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Why the operating margin decreased in 2013

In the last part of this series, we analyzed Halliburton’s (HAL) Completion and Production segment’s revenue. In this part of the series, we’ll discuss how this segment’s operating income performed over the past few years. We’ll see if the trend continued in 2014.

The Completion and Production segment accounted for 60% of Halliburton’s total operating income in 9M14.

The segment’s operating income declined 8.6% to $2.87 billion in 2013—from $3.14 billion recorded last year. In 2013, the factors that negatively affected the operating income were:

  • A 15% decline in earnings from its Completion and Production segment in North America
  • A 22% lower profit from its Drilling and Evaluation segment in Latin America

An 18% higher operating income in the Middle East and Asia, higher direct sales in China, and improved profitability in Indonesia helped the operating income recover somewhat in 2013.

The operating income margin also dropped to 16.4% in 2013—from 18.1% in 2012. The operating income margin is the operating income as a percentage of the segment’s revenue.

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Operating income improved significantly in 9M14

In 9M14, the Completion and Production segment’s operating income improved by 24%—compared to 9M13. It improved due to increased profitability across all of the regions. North America contributed primarily to the segment’s growth. It had 28% growth as a result of increased profitability for stimulation activity in the US land market. Also, the pressure pumping activity improved in Latin America—in Argentina and Mexico. It declined in 2013—due to lower activity in Brazil.

The segment’s operating profit margin also increased to 17.7% in 9M14—from 16.3% the previous year. Baker Hughes (BHI) is a major oilfield service company. It recorded 14.8% growth in operating income in 3Q14—compared to 3Q13. During the same period, Schlumberger (SLB) recorded 10.7% growth. Weatherford International (WFT) recorded 33.1% growth in operating income. All of these companies are part of the VanEck Vectors Oil Services ETF (OIH).

In the next part of this series, we’ll discuss how Halliburton’s Drilling and Evaluation segment performed.

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