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Halliburton: What’s Management’s View after 3Q16?

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Halliburton’s performance

From 3Q15 to 3Q16, Halliburton’s (HAL) D&E (Drilling and Evaluation) segment’s revenue fell 30%. In regards to the operating income, the D&E segment fell 62% in 3Q16 compared to 3Q15 due to the low rig count, lower pricing for Halliburton’s products and services, and upstream producers’ budget cuts. Halliburton accounts for 0.45% of the iShares S&P 500 ETF (IVE).

From 3Q15 to 3Q16, the C&P (Completion and Production) segment’s revenue fell ~32%. The C&P segment’s operating income fell 85% in 3Q16 compared to 3Q15. It fell due to lower revenue from pressure pumping services, lower activity in the Gulf of Mexico, and lower completion tool sales in Nigeria. The US land stimulation activity partially mitigated the negative effects.

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Compared to a 69% fall in Halliburton’s operating income in 3Q16 compared to the same quarter last year, Weatherford International (WFT) switched to a $66 million operating loss in 2Q16—compared to $36 million in operating income a year ago. Weatherford International’s market capitalization stands at $5.5 billion—compared to Halliburton’s $41.8 billion.

What impacted Halliburton’s year-to-date performance?

In the first nine months of 2016, Halliburton’s revenues fell 36% to $11.8 billion compared to the same period in 2015. Its reported net loss fell to $5.6 billion in the first nine months of 2016—compared to a net loss of $643 million in the first nine months of 2015. In the first nine months of 2016, Halliburton’s bottom line was impacted by:

  • ~$4.0 billion pre-tax costs related to the Baker Hughes termination
  • ~$3.2 billion impairment and other charges (pre-tax)

Is Halliburton’s management cautious about 4Q16?

Dave Lesar, Halliburton’s chairman and CEO, thinks that the energy market is turning positive. In the 3Q16 press release, he said, “As we look forward, we expect an increased commodity price to stimulate rig count growth. In the near term, we remain cautious around fourth quarter customer activity due to holiday and seasonal weather-related downtimes. However, it does not change our view that things are getting better for us and our customers.” The US rig count has been strong since the end of 3Q16. A higher or steady rig count will have a positive impact on Halliburton’s performance going forward.

In the next part, we’ll discuss Halliburton’s returns.

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