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Why Halliburton’s Free Cash Flow Is Remarkable

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Dec. 4 2020, Updated 10:51 a.m. ET

Comparing free cash flow growth

In this part of our series, we’ll look into the FCF (free cash flow) growth of Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BHI), and FMC Technologies (FTI)—the four prominent names in the OFS (oilfield services) space we’ve been analyzing in this series. Remember, free cash flow is defined as CFO (cash flow from operations) minus capital expenditures or capex.

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HAL, the 3Q16 FCF leader

Halliburton’s 3Q16 FCF improved significantly over the previous year. Its CFO rose significantly due to increased rig utilization in North America and prudent cost and working capital management. HAL’s capex also fell sharply in 3Q16, leading to a sharp FCF improvement during the same period. Notably, HAL makes up 1.8% of the iShares Global Energy ETF (IXC).

SLB’s FCF was positive in 3Q16

Schlumberger also recorded positive free cash flow in 3Q16. SLB’s FCF in 3Q16 was ~$1.0 billion, or 54% lower than in 3Q15. The company’s 3Q16 CFO fell 49% from 3Q15 due primarily to lower revenue, while its capex fell 32%. Lower CFO more than offset the capex fall, which led to lower but positive free cash flow in the most recent quarter.

FTI’s and BHI’s FCF fall

In 3Q16, FMC Technologies’ FCF fell 56% YoY (year-over-year) to $96 million, as compared to $217 million in 3Q15. FTI’s CFO fell 54% YoY in 3Q16 due to lower revenues, and its capex fell 47.6% during the same period. However, this lower capex could not offset its falling CFO, which led to the lower FCF.

Baker Hughes’s 3Q16 FCF fell 80% YoY to $49 million, as compared to $247 million in 3Q15. From 3Q15 to 3Q16, its CFO fell 72% due to an increase in operational losses and reduced revenue. The lower CFO more than offset its 61% fall in capex, which led to an FCF crash.

In the next part, we’ll look into these four companies’ indebtedness.

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