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Why Halliburton’s Free Cash Has Been Plummeting

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Halliburton’s operating cash flows and capex

In this article, we will analyze how Halliburton’s (HAL) operating cash flows have trended over the past few quarters. We will also discuss how its free cash flows (or FCF) were affected by its capital expenditures.

HAL’s cash from operating activities (or CFO) has crashed in the face of the sharp decline in crude oil prices and upstream companies’ exploration and production budget slashes. The company’s operating cash flow fell 97% in 3Q15 to $26 million from the corresponding quarter last year.

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The primary reason HAL’s CFO decreased was its sharp revenue decline in the past four quarters. HAL’s CFO was also negatively affected by legacy payments related to its involvement in the Deepwater Horizon incident, and restructuring and acquisition-related costs. HAL also reduced capital expenditure significantly by 42% from 3Q14 to 3Q15.

Halliburton’s free cash flow

As a result of steeply falling CFO, HAL’s FCF deteriorated to a negative $499 million in 3Q15 from a negative $71 million a year ago. HAL’s FCF was a positive $664 million in 2Q15.

In comparison, Superior Energy Services (SPN) saw a 74% FCF decline in 3Q15 over 3Q14. SPN is HAL’s smaller peer, generating $53.3 million FCF in 3Q15 compared to HAL’s negative $499 million. HAL makes up 2.4% of the Vanguard Energy ETF (VDE). Through VDE, investors can get exposure to 149 large, mid-size, and small US companies within the energy sector.

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