UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
| ☒ | Quarterly Report Pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the
Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
ORor
| | | | | |
| ☐ | Transition Report Pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d)
of the Securities Exchange Act of
For the transition period from _____ to _____
|
For the transition period from _______to_______
Commission File Number 001-03492
HALLIBURTON COMPANY
(a Delaware corporation)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) |
3000 North Sam Houston Parkway East
Houston, Texas 77032
(Address of Principal Executive Offices)
Telephone Number – Area Code (281) 871-2699
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.
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).
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 | ☐ |
| Smaller Reporting 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).
As of October 16, 2020,15, 2021, there were 884,007,207895,116,136 shares of Halliburton Company common stock, $2.50 par value per share, outstanding.
HALLIBURTON COMPANY
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Unaudited)
| | | Three Months Ended
September 30 | | Nine Months Ended
September 30 | | | Three Months Ended
September 30 | Nine Months Ended
September 30 |
| Millions of dollars and shares except per share data | Millions of dollars and shares except per share data | 2020 | 2019 | 2020 | 2019 | Millions of dollars and shares except per share data | 2021 | 2020 | 2021 | 2020 |
| Revenue: | Revenue: | | Revenue: | |
| Services | Services | $ | 2,068 | | $ | 4,207 | | $ | 7,940 | | $ | 13,118 | | Services | $ | 2,802 | | $ | 2,068 | | $ | 7,948 | | $ | 7,940 | |
| Product sales | Product sales | 907 | | 1,343 | | 3,268 | | 4,099 | | Product sales | 1,058 | | 907 | | 3,070 | | 3,268 | |
| Total revenue | Total revenue | 2,975 | | 5,550 | | 11,208 | | 17,217 | | Total revenue | 3,860 | | 2,975 | | 11,018 | | 11,208 | |
| Operating costs and expenses: | Operating costs and expenses: | | Operating costs and expenses: | |
| Cost of services | Cost of services | 1,904 | | 3,860 | | 7,394 | | 12,220 | | Cost of services | 2,467 | | 1,904 | | 7,088 | | 7,394 | |
| Cost of sales | Cost of sales | 755 | | 1,101 | | 2,663 | | 3,317 | | Cost of sales | 889 | | 755 | | 2,523 | | 2,663 | |
| Impairments and other charges | Impairments and other charges | 133 | | 0 | | 3,353 | | 308 | | Impairments and other charges | 12 | | 133 | | 12 | | 3,353 | |
| General and administrative | General and administrative | 41 | | 53 | | 138 | | 168 | | General and administrative | 46 | | 41 | | 145 | | 138 | |
| Total operating costs and expenses | Total operating costs and expenses | 2,833 | | 5,014 | | 13,548 | | 16,013 | | Total operating costs and expenses | 3,414 | | 2,833 | | 9,768 | | 13,548 | |
| Operating income (loss) | Operating income (loss) | 142 | | 536 | | (2,340) | | 1,204 | | Operating income (loss) | 446 | | 142 | | 1,250 | | (2,340) | |
| Interest expense, net of interest income of $11, $6, $28 and $18 | (122) | | (141) | | (380) | | (428) | | |
| Interest expense, net of interest income of $15, $11, $39, and $28 | | Interest expense, net of interest income of $15, $11, $39, and $28 | (116) | | (122) | | (361) | | (380) | |
| Loss on early extinguishment of debt | Loss on early extinguishment of debt | 0 | | 0 | | (168) | | 0 | | Loss on early extinguishment of debt | — | | — | | — | | (168) | |
| Other, net | Other, net | (21) | | (23) | | (92) | | (61) | | Other, net | (14) | | (21) | | (55) | | (92) | |
| Income (loss) before income taxes | Income (loss) before income taxes | (1) | | 372 | | (2,980) | | 715 | | Income (loss) before income taxes | 316 | | (1) | | 834 | | (2,980) | |
| Income tax benefit (provision) | Income tax benefit (provision) | (18) | | (76) | | 265 | | (190) | | Income tax benefit (provision) | (76) | | (18) | | (193) | | 265 | |
| | Net income (loss) | Net income (loss) | $ | (19) | | $ | 296 | | $ | (2,715) | | $ | 525 | | Net income (loss) | $ | 240 | | $ | (19) | | $ | 641 | | $ | (2,715) | |
| Net (income) loss attributable to noncontrolling interest | Net (income) loss attributable to noncontrolling interest | 2 | | (1) | | 5 | | (3) | | Net (income) loss attributable to noncontrolling interest | (4) | | 2 | | (8) | | 5 | |
| Net income (loss) attributable to company | Net income (loss) attributable to company | $ | (17) | | $ | 295 | | $ | (2,710) | | $ | 522 | | Net income (loss) attributable to company | $ | 236 | | $ | (17) | | $ | 633 | | $ | (2,710) | |
| | | | Basic and diluted net income (loss) per share | Basic and diluted net income (loss) per share | $ | (0.02) | | $ | 0.34 | | $ | (3.08) | | $ | 0.60 | | Basic and diluted net income (loss) per share | $ | 0.26 | | $ | (0.02) | | $ | 0.71 | | $ | (3.08) | |
| | Basic weighted average common shares outstanding | 882 | | 876 | | 879 | | 874 | | |
| Diluted weighted average common shares outstanding | 882 | | 876 | | 879 | | 875 | | |
| See notes to condensed consolidated financial statements. | | |
| | Basic and diluted weighted average common shares outstanding | | Basic and diluted weighted average common shares outstanding | 894 | | 882 | | 891 | | 879 | |
| | | See notes to condensed consolidated financial statements. | |
HAL Q3 20202021 FORM 10-Q | 1
HALLIBURTON COMPANY
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| | | Three Months Ended
September 30 | | Nine Months Ended
September 30 | | | Three Months Ended
September 30 | Nine Months Ended
September 30 |
| Millions of dollars | Millions of dollars | 2020 | 2019 | 2020 | 2019 | Millions of dollars | 2021 | 2020 | 2021 | 2020 |
| Net income (loss) | Net income (loss) | $ | (19) | | $ | 296 | | $ | (2,715) | | $ | 525 | | Net income (loss) | $ | 240 | | $ | (19) | | $ | 641 | | $ | (2,715) | |
| | Other comprehensive income, net of income taxes | Other comprehensive income, net of income taxes | 2 | | 0 | | 22 | | 2 | | Other comprehensive income, net of income taxes | — | | 2 | | 2 | | 22 | |
| Comprehensive income (loss) | Comprehensive income (loss) | $ | (17) | | $ | 296 | | $ | (2,693) | | $ | 527 | | Comprehensive income (loss) | $ | 240 | | $ | (17) | | $ | 643 | | $ | (2,693) | |
| Comprehensive (income) loss attributable to noncontrolling interest | Comprehensive (income) loss attributable to noncontrolling interest | 1 | | (1) | | 4 | | (3) | | Comprehensive (income) loss attributable to noncontrolling interest | (4) | | 1 | | (8) | | 4 | |
| Comprehensive income (loss) attributable to company shareholders | Comprehensive income (loss) attributable to company shareholders | $ | (16) | | $ | 295 | | $ | (2,689) | | $ | 524 | | Comprehensive income (loss) attributable to company shareholders | $ | 236 | | $ | (16) | | $ | 635 | | $ | (2,689) | |
| See notes to condensed consolidated financial statements. | | |
| | | See notes to condensed consolidated financial statements. | |
HAL Q3 20202021 FORM 10-Q | 2
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
| | Millions of dollars and shares except per share data | Millions of dollars and shares except per share data | September 30,
2020 | December 31,
2019 | Millions of dollars and shares except per share data | September 30,
2021 | December 31,
2020 |
| Assets | Assets | | Assets |
| Current assets: | Current assets: | | Current assets: | |
| Cash and equivalents | Cash and equivalents | $ | 2,115 | | $ | 2,268 | | Cash and equivalents | $ | 2,632 | | $ | 2,563 | |
| Receivables (net of allowances for credit losses of $818 and $776) | 3,145 | | 4,577 | | |
| Receivables (net of allowances for credit losses of $765 and $824) | | Receivables (net of allowances for credit losses of $765 and $824) | 3,525 | | 3,071 | |
| Inventories | Inventories | 2,580 | | 3,139 | | Inventories | 2,354 | | 2,349 | |
| | Other current assets | Other current assets | 1,183 | | 1,228 | | Other current assets | 920 | | 1,492 | |
| Total current assets | Total current assets | 9,023 | | 11,212 | | Total current assets | 9,431 | | 9,475 | |
| Property, plant and equipment (net of accumulated depreciation of $11,240 and $12,630) | 5,033 | | 7,310 | | |
| Property, plant, and equipment (net of accumulated depreciation of $11,377 and $11,039) | | Property, plant, and equipment (net of accumulated depreciation of $11,377 and $11,039) | 4,235 | | 4,325 | |
| Goodwill | Goodwill | 2,804 | | 2,812 | | Goodwill | 2,841 | | 2,804 | |
| Deferred income taxes | Deferred income taxes | 2,056 | | 1,683 | | Deferred income taxes | 2,149 | | 2,166 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 761 | | 931 | | Operating lease right-of-use assets | 984 | | 786 | |
| Other assets | Other assets | 1,197 | | 1,429 | | Other assets | 1,385 | | 1,124 | |
| Total assets | Total assets | $ | 20,874 | | $ | 25,377 | | Total assets | $ | 21,025 | | $ | 20,680 | |
| Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | Liabilities and Shareholders’ Equity |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 1,548 | | $ | 2,432 | | Accounts payable | $ | 2,011 | | $ | 1,573 | |
| Accrued employee compensation and benefits | Accrued employee compensation and benefits | 503 | | 604 | | Accrued employee compensation and benefits | 583 | | 517 | |
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 240 | | 208 | | Current portion of operating lease liabilities | 258 | | 251 | |
| Current maturities of long-term debt | Current maturities of long-term debt | 195 | | 11 | | Current maturities of long-term debt | 11 | | 695 | |
| | Other current liabilities | Other current liabilities | 1,437 | | 1,623 | | Other current liabilities | 1,083 | | 1,385 | |
| Total current liabilities | Total current liabilities | 3,923 | | 4,878 | | Total current liabilities | 3,946 | | 4,421 | |
| Long-term debt | Long-term debt | 9,632 | | 10,316 | | Long-term debt | 9,125 | | 9,132 | |
| Operating lease liabilities | Operating lease liabilities | 754 | | 825 | | Operating lease liabilities | 907 | | 758 | |
| Employee compensation and benefits | Employee compensation and benefits | 530 | | 525 | | Employee compensation and benefits | 547 | | 562 | |
| Other liabilities | Other liabilities | 832 | | 808 | | Other liabilities | 807 | | 824 | |
| Total liabilities | Total liabilities | 15,671 | | 17,352 | | Total liabilities | 15,332 | | 15,697 | |
| Shareholders’ equity: | Shareholders’ equity: | | Shareholders’ equity: | |
Common stock, par value $2.50 per share (authorized 2,000 shares, issued 1,066 and 1,068 shares) | 2,666 | | 2,669 | | |
| Common stock, par value $2.50 per share (authorized 2,000 shares, issued 1,066 and 1,066 shares) | | Common stock, par value $2.50 per share (authorized 2,000 shares, issued 1,066 and 1,066 shares) | 2,666 | | 2,666 | |
| Paid-in capital in excess of par value | Paid-in capital in excess of par value | 23 | | 143 | | Paid-in capital in excess of par value | 24 | | — | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (340) | | (362) | | Accumulated other comprehensive loss | (360) | | (362) | |
| Retained earnings | Retained earnings | 8,987 | | 11,989 | | Retained earnings | 8,927 | | 8,691 | |
| Treasury stock, at cost (183 and 190 shares) | (6,136) | | (6,427) | | |
| Treasury stock, at cost (172 and 181 shares) | | Treasury stock, at cost (172 and 181 shares) | (5,576) | | (6,021) | |
| Company shareholders’ equity | Company shareholders’ equity | 5,200 | | 8,012 | | Company shareholders’ equity | 5,681 | | 4,974 | |
| Noncontrolling interest in consolidated subsidiaries | Noncontrolling interest in consolidated subsidiaries | 3 | | 13 | | Noncontrolling interest in consolidated subsidiaries | 12 | | 9 | |
| Total shareholders’ equity | Total shareholders’ equity | 5,203 | | 8,025 | | Total shareholders’ equity | 5,693 | | 4,983 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 20,874 | | $ | 25,377 | | Total liabilities and shareholders’ equity | $ | 21,025 | | $ | 20,680 | |
| See notes to condensed consolidated financial statements. | | |
| | | See notes to condensed consolidated financial statements. | |
HAL Q3 20202021 FORM 10-Q | 3
HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | Nine Months Ended
September 30 | | | Nine Months Ended
September 30 | |
| Millions of dollars | Millions of dollars | 2020 | 2019 | | Millions of dollars | 2021 | 2020 | |
| Cash flows from operating activities: | Cash flows from operating activities: | | | Cash flows from operating activities: | | |
| Net income (loss) | Net income (loss) | $ | (2,715) | | $ | 525 | | | Net income (loss) | $ | 641 | | $ | (2,715) | | |
| Adjustments to reconcile net income (loss) to cash flows from operating activities: | Adjustments to reconcile net income (loss) to cash flows from operating activities: | | | Adjustments to reconcile net income (loss) to cash flows from operating activities: | | |
| Depreciation, depletion, and amortization | | Depreciation, depletion, and amortization | 673 | | 829 | | |
| Accrued employee benefits | | Accrued employee benefits | 22 | | (494) | | |
| Impairments and other charges | Impairments and other charges | 3,353 | | 308 | | | Impairments and other charges | 12 | | 3,353 | | |
| Depreciation, depletion and amortization | 829 | | 1,253 | | | |
| Accrued employee benefits | (494) | | (73) | | | |
| | Deferred income tax benefit | Deferred income tax benefit | (380) | | (77) | | | Deferred income tax benefit | 11 | | (380) | | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
| Accounts payable | | Accounts payable | 448 | | (933) | | |
| Receivables | Receivables | 1,294 | | 7 | | | Receivables | (364) | | 1,294 | | |
| Accounts payable | (933) | | (283) | | | |
| Inventories | Inventories | 115 | | (380) | | | Inventories | (3) | | 115 | | |
| Other operating activities | Other operating activities | 174 | | (2) | | | Other operating activities | (211) | | 174 | | |
| Total cash flows provided by (used in) operating activities | 1,243 | | 1,278 | | | |
| Total cash flows provided by operating activities | | Total cash flows provided by operating activities | 1,229 | | 1,243 | | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | Cash flows from investing activities: | | |
| Capital expenditures | Capital expenditures | (510) | | (1,190) | | | Capital expenditures | (483) | | (510) | | |
| | Proceeds from sales of property, plant and equipment | 199 | | 143 | | | |
| Proceeds from sales of property, plant, and equipment | | Proceeds from sales of property, plant, and equipment | 145 | | 199 | | |
| | Proceeds from a structured real estate transaction | | Proceeds from a structured real estate transaction | 87 | | — | | |
| Other investing activities | Other investing activities | (33) | | (83) | | | Other investing activities | (57) | | (33) | | |
| Total cash flows provided by (used in) investing activities | (344) | | (1,130) | | | |
| Total cash flows used in investing activities | | Total cash flows used in investing activities | (308) | | (344) | | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | Cash flows from financing activities: | | |
| Payments on long-term borrowings | Payments on long-term borrowings | (1,653) | | (11) | | | Payments on long-term borrowings | (696) | | (1,653) | | |
| Dividends to shareholders | | Dividends to shareholders | (121) | | (238) | | |
| Proceeds from issuance of long-term debt, net | Proceeds from issuance of long-term debt, net | 994 | | 0 | | | Proceeds from issuance of long-term debt, net | — | | 994 | | |
| Dividends to shareholders | (238) | | (472) | | | |
| Stock repurchase program | Stock repurchase program | (100) | | (100) | | | Stock repurchase program | — | | (100) | | |
| Other financing activities | Other financing activities | 25 | | 33 | | | Other financing activities | 7 | | 25 | | |
| Total cash flows provided by (used in) financing activities | (972) | | (550) | | | |
| Total cash flows used in financing activities | | Total cash flows used in financing activities | (810) | | (972) | | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (80) | | (35) | | | Effect of exchange rate changes on cash | (42) | | (80) | | |
| Decrease in cash and equivalents | (153) | | (437) | | | |
| Increase (decrease) in cash and equivalents | | Increase (decrease) in cash and equivalents | 69 | | (153) | | |
| Cash and equivalents at beginning of period | Cash and equivalents at beginning of period | 2,268 | | 2,008 | | | Cash and equivalents at beginning of period | 2,563 | | 2,268 | | |
| Cash and equivalents at end of period | Cash and equivalents at end of period | $ | 2,115 | | $ | 1,571 | | | Cash and equivalents at end of period | $ | 2,632 | | $ | 2,115 | | |
| Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | Supplemental disclosure of cash flow information: | | |
| Cash payments during the period for: | Cash payments during the period for: | | | Cash payments during the period for: | | |
| Interest | Interest | $ | 396 | | $ | 394 | | | Interest | $ | 402 | | $ | 396 | | |
| Income taxes | Income taxes | $ | 256 | | $ | 288 | | | Income taxes | $ | 157 | | $ | 256 | | |
| See notes to condensed consolidated financial statements. | | | |
| | | See notes to condensed consolidated financial statements. | | |
HAL Q3 20202021 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 20192020 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 September 30, 20202021 and the results of our operations for the three and nine months ended September 30, 20202021 and 2019,2020, and our cash flows for the nine months ended September 30, 20202021 and 2019.2020. 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 nine months ended September 30, 20202021 may not be indicative of results for the full year.
HAL Q3 2020 FORM 10-Q | 5
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
Note 2. Impairments and Other Charges
The oil and gas industry has experienced unprecedented disruption during 2020 as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic and subsequent mitigation efforts. This disruption created a substantial surplus of oil and a decline in oil prices. West Texas Intermediate (WTI) oil spot prices decreased during the first quarter of 2020 from a high of $63 per barrel in early January of 2020 to approximately $21 per barrel by the end of the first quarter of 2020. Although oil prices have recovered modestly, WTI oil spot prices averaged approximately $41 per barrel during the third quarter of 2020, which is approximately 28% less than the average price per barrel during 2019. As a result, oil and gas activity has declined significantly during 2020, with the global rig count sinking to the lowest level since 1973. The U.S. average rig count continued to decline in the third quarter of 2020, dropping 35% compared to the second quarter of 2020, while the international rig count dropped 12% over the same period. In the first and second quarters of 2020, we determined these events constituted a triggering event that required us to review the recoverability of our long-lived assets and perform an interim goodwill impairment assessment as of March 31, 2020 and May 1, 2020. Our review resulted in the recording of impairments and other charges in the first half of 2020. As a result of our goodwill impairment assessments, we determined that the fair value of each reporting unit exceeded its net book value and, therefore, 0 goodwill impairments were deemed necessary.
The factors described above continued to impact our business in the third quarter of 2020 and affected our overall outlook globally. As a result, we recognized additional severance and other charges during the three months ended September 30, 2020, to further adjust our cost structure to reflect current market conditions; however, we determined there were no events that would indicate the carrying amount of long-lived assets may not be recoverable. The following table presents various pre-tax charges we recorded during the three months ended September 30, 2020 and nine months ended September 30, 20202021 and 2019,2020, which are reflected within "Impairments and other charges" on our condensed consolidated statements of operations. There were 0 impairments and other
| | | | | | | | | | | | | | |
| Three Months Ended
September 30 | Nine Months Ended
September 30 |
| Millions of dollars | 2021 | 2020 | 2021 | 2020 |
| Catch-up depreciation | $ | 36 | | $ | — | | $ | 36 | | $ | — | |
| Severance costs | 15 | | 83 | | 15 | | 356 | |
| Long-lived asset impairments | — | | 31 | | — | | 2,299 | |
| Inventory costs and write-downs | — | | 11 | | — | | 505 | |
| Gain on real estate transaction | (74) | | — | | (74) | | — | |
| | | | |
| Other | 35 | | 8 | | 35 | | 193 | |
| Total impairments and other charges | $ | 12 | | $ | 133 | | $ | 12 | | $ | 3,353 | |
Of the $12 million net charges recorded during the three months ended September 30, 2019.
| | | | | | | | | | | | |
| Three Months Ended
September 30 | | Nine Months Ended
September 30 | |
| Millions of dollars | 2020 | | 2020 | 2019 |
| Severance costs | $ | 83 | | | $ | 356 | | $ | 77 | |
| Long-lived asset impairments | 31 | | | 2,299 | | 150 | |
| Inventory costs and write-downs | 11 | | | 505 | | 33 | |
| Other | 8 | | | 193 | | 48 | |
| Total impairments and other charges | $ | 133 | | | $ | 3,353 | | $ | 308 | |
Of the $1332021, a $42 million of severance and other charges recorded during the three months ended September 30, 2020, approximately $90 millioncharge was attributable to our Completion and Production segment, and approximately $40a $9 million charge was attributable to our Drilling and Evaluation segment.segment, and a $39 million net gain was attributable to Corporate and other.
HAL Q3 2021 FORM 10-Q | 5
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
GivenIn the dynamic naturethird quarter of 2021, we decided to discontinue the proposed sale of our Pipeline and Process Services business and as a result recorded a $36 million charge for accumulated unrecognized depreciation and amortization expense during the period the associated assets were classified as held for sale. We have reclassified this business to assets held and used in the accompanying condensed consolidated balance sheet as of September 30, 2021. Beginning October 1, 2021, all depreciation and amortization expense associated with this business will be included in operating costs and expenses on our condensed consolidated statements of operations.
During the third quarter of 2021, we finalized a previously communicated structured transaction relating to most of our owned U.S. real estate. As a result of the COVID-19 pandemictransaction, we derecognized $358 million of assets previously held for sale included in Other current assets and related market conditions, we cannot reasonably estimaterecognized an investment in an unconsolidated subsidiary of $349 million included in Other Assets, which resulted in a gain of $74 million. We have elected to account for our investment under the period that these events will persist orfair value option using an income approach. We believe the full extentelection of the impact they will have onfair value option aligns the accounting treatment with our business. If market conditions continue to deteriorate, including crude oil prices further declining or remaining at low levels for a sustained period, we may record further asset impairments, which may include an impairmentinterest in the real estate held by the unconsolidated subsidiary. As part of the carrying valuetransaction, we completed the sale-leaseback of the same U.S. real estate which resulted in an increase of our goodwill.operating right-of-use assets and operating lease liabilities of $276 million and we received gross cash proceeds of $87 million. Pursuant to a master lease agreement, the properties are subject to initial lease terms of either twelve or fifteen years and we have the option to extend the term on each property for two additional terms of five years each thereafter and the rent payments are subject to an annual rent escalator of 1.35%.
Note 3. Business Segment Information
We operate under 2 divisions, which form the basis for the 2 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.
The following table presents information on our business segments. | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30 | Nine Months Ended
September 30 |
| Millions of dollars | 2021 | 2020 | 2021 | 2020 |
| Revenue: | | | | |
| Completion and Production | $ | 2,136 | | $ | 1,574 | | $ | 6,054 | | $ | 6,029 | |
| Drilling and Evaluation | 1,724 | | 1,401 | | 4,964 | | 5,179 | |
| Total revenue | $ | 3,860 | | $ | 2,975 | | $ | 11,018 | | $ | 11,208 | |
| Operating income (loss): | | | | |
| Completion and Production | $ | 322 | | $ | 212 | | $ | 891 | | $ | 713 | |
| Drilling and Evaluation | 186 | | 105 | | 532 | | 452 | |
| Total operations | 508 | | 317 | | 1,423 | | 1,165 | |
| Corporate and other (a) | (50) | | (42) | | (161) | | (152) | |
| Impairments and other charges (b) | (12) | | (133) | | (12) | | (3,353) | |
| Total operating income (loss) | $ | 446 | | $ | 142 | | $ | 1,250 | | $ | (2,340) | |
| Interest expense, net of interest income | (116) | | (122) | | (361) | | (380) | |
| Loss on early extinguishment of debt (c) | — | | — | | — | | (168) | |
| Other, net | (14) | | (21) | | (55) | | (92) | |
| Income (loss) before income taxes | $ | 316 | | $ | (1) | | $ | 834 | | $ | (2,980) | |
| | | | | |
| (a) | Includes certain expenses not attributable to a business segment, such as costs related to support functions and corporate executives, and also includes amortization expense associated with intangible assets recorded as a result of acquisitions. |
| (b) | For the three and nine months ended September 30, 2021, amount includes a $42 million charge attributable to Completions and Production, a $9 million charge attributable to Drilling and Evaluation, and a $39 million net gain attributable to Corporate and other. For the three and nine months ended September 30, 2020, amount includes $90 million and $2.1 billion attributable to Completion and Production, $40 million and $1.2 billion attributable to Drilling and Evaluation, and $3 million and $44 million attributable to Corporate and other, respectively. |
| (c) | For the nine months ended September 30, 2020, amount includes a $168 million loss on extinguishment of debt related to the early repurchase of senior notes. |
HAL Q3 20202021 FORM 10-Q | 6
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
The following table presents information on our business segments.
| | | | | | | | | | | | | | |
| | Three Months Ended
September 30 | | Nine Months Ended
September 30 | |
| Millions of dollars | 2020 | 2019 | 2020 | 2019 |
| Revenue: | | | | |
| Completion and Production | $ | 1,574 | | $ | 3,506 | | $ | 6,029 | | $ | 10,973 | |
| Drilling and Evaluation | 1,401 | | 2,044 | | 5,179 | | 6,244 | |
| Total revenue | $ | 2,975 | | $ | 5,550 | | $ | 11,208 | | $ | 17,217 | |
| Operating income (loss): | | | | |
| Completion and Production | $ | 212 | | $ | 446 | | $ | 713 | | $ | 1,284 | |
| Drilling and Evaluation | 105 | | 150 | | 452 | | 418 | |
| Total operations | 317 | | 596 | | 1,165 | | 1,702 | |
| Corporate and other (a) | (42) | | (60) | | (152) | | (190) | |
| Impairments and other charges (b) | (133) | | 0 | | (3,353) | | (308) | |
| Total operating income (loss) | $ | 142 | | $ | 536 | | $ | (2,340) | | $ | 1,204 | |
| Interest expense, net of interest income | (122) | | (141) | | (380) | | (428) | |
| Loss on early extinguishment of debt (c) | 0 | | 0 | | (168) | | 0 | |
| Other, net | (21) | | (23) | | (92) | | (61) | |
| Income (loss) before income taxes | $ | (1) | | $ | 372 | | $ | (2,980) | | $ | 715 | |
(a) Includes certain expenses not attributable to a business segment, such as costs related to support functions and corporate executives, and includes amortization expense associated with intangible assets recorded as a result of acquisitions.
(b) For the three months ended September 30, 2020, amount includes approximately $90 million attributable to Completion and Production, $40 million attributable to Drilling and Evaluation, and $3 million attributable to Corporate and other. For the nine months ended September 30, 2020, amount includes $2.1 billion attributable to Completion and Production, $1.2 billion attributable to Drilling and Evaluation, and $44 million attributable to Corporate and other. For the nine months ended September 30, 2019, amount includes $127 million attributable to Completion and Production, $153 million attributable to Drilling and Evaluation, and $28 million attributable to Corporate and other. See Note 2 for further discussion on these impairments and other charges. There were 0 impairments and other charges recorded during the three months ended September 30, 2019.
(c) For the nine months ended September 30, 2020, amount includes a $168 million loss on extinguishment of debt related to the early repurchase of senior notes. See Note 6 for further discussion on this charge.
Note 4. 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 customers' historical payment experience with, and the financial condition.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 2 reportable segments, in addition to geographical area. Based on the location of services provided and products sold, 40% and 38% and 53% of our consolidated revenue was from the United States for the nine months ended September 30, 20202021 and 2019,2020, respectively. No other country accounted for more than 10% of our revenue.
HAL Q3 2020 FORM 10-Q | 7
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
The following table presents information on our disaggregated revenue.
| | Millions of dollars | Millions of dollars | Three Months Ended
September 30 | | Nine Months Ended
September 30 | | Millions of dollars | Three Months Ended
September 30 | Nine Months Ended
September 30 |
| Revenue by segment: | Revenue by segment: | 2020 | 2019 | 2020 | 2019 | Revenue by segment: | 2021 | 2020 | 2021 | 2020 |
| Completion and Production | Completion and Production | $ | 1,574 | | $ | 3,506 | | $ | 6,029 | | $ | 10,973 | | Completion and Production | $ | 2,136 | | $ | 1,574 | | $ | 6,054 | | $ | 6,029 | |
| Drilling and Evaluation | Drilling and Evaluation | 1,401 | | 2,044 | | 5,179 | | 6,244 | | Drilling and Evaluation | 1,724 | | 1,401 | | 4,964 | | 5,179 | |
| Total revenue | Total revenue | $ | 2,975 | | $ | 5,550 | | $ | 11,208 | | $ | 17,217 | | Total revenue | $ | 3,860 | | $ | 2,975 | | $ | 11,018 | | $ | 11,208 | |
| Revenue by geographic region: | Revenue by geographic region: | | Revenue by geographic region: | |
| North America | North America | $ | 984 | | $ | 2,949 | | $ | 4,493 | | $ | 9,551 | | North America | $ | 1,615 | | $ | 984 | | $ | 4,588 | | $ | 4,493 | |
| Latin America | Latin America | 380 | | 608 | | 1,242 | | 1,766 | | Latin America | 624 | | 380 | | 1,693 | | 1,242 | |
| Europe/Africa/CIS | Europe/Africa/CIS | 649 | | 831 | | 2,171 | | 2,402 | | Europe/Africa/CIS | 676 | | 649 | | 1,989 | | 2,171 | |
| Middle East/Asia | Middle East/Asia | 962 | | 1,162 | | 3,302 | | 3,498 | | Middle East/Asia | 945 | | 962 | | 2,748 | | 3,302 | |
| Total revenue | Total revenue | $ | 2,975 | | $ | 5,550 | | $ | 11,208 | | $ | 17,217 | | Total revenue | $ | 3,860 | | $ | 2,975 | | $ | 11,018 | | $ | 11,208 | |
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, waswere 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.
HAL Q3 2021 FORM 10-Q | 7
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
Receivables
As of September 30, 2020, 26%2021, 27% of our net tradetotal receivables were from customers in the United States. As of December 31, 2019, 36%2020, 32% of our net tradetotal receivables were from customers in the United States. Receivables from our primary customer in Mexico accounted for approximately 10% of our total receivables as of September 30, 2021. While we have experienced payment delays in Mexico, these 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. NaN other country or single customer accounted for more than 10% of our trade receivables at those dates. As a result of
Although the current market environment has been improving, we continue to have an increased risk of delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies. 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 agency ratings, and production profile, as well as political and economic factors in countries of operations and other customer-specific factors.
Note 5. Inventories
Inventories consisted of the following:
| | | | | | | | |
| Millions of dollars | September 30,
2021 | December 31,
2020 |
| Finished products and parts | $ | 1,398 | | $ | 1,330 | |
| Raw materials and supplies | 870 | | 952 | |
| Work in process | 86 | | 67 | |
| Total | $ | 2,354 | | $ | 2,349 | |
Note 6. Debt
We repaid the $185 million principal balance of our 8.75% senior debentures when they matured in February of 2021. In August of 2021, we redeemed the entire $500 million aggregate principal amount outstanding of our 3.25% senior notes at par. The redemption price for the notes consisted of 100% of the principal amount of the notes outstanding, plus accrued and unpaid interest on the notes. We used cash on hand to fund the redemption of the debentures and notes.
HAL Q3 20202021 FORM 10-Q | 8
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
Note 5. Inventories
Inventories consisted of the following:
| | | | | | | | |
| Millions of dollars | September 30,
2020 | December 31,
2019 |
| Finished products and parts | $ | 1,452 | | $ | 1,865 | |
| Raw materials and supplies | 1,061 | | 1,147 | |
| Work in process | 67 | | 127 | |
| Total | $ | 2,580 | | $ | 3,139 | |
During the nine months ended September 30, 2020, we recorded $505 million of impairment charges related to inventory. These charges primarily consisted of the disposal of excess inventory, including drilling fluids and other chemicals, and write-downs in which some of our inventory cost exceeded its market value.
Note 6. Debt
On March 3, 2020, we issued $1.0 billion aggregate principal amount of 2.92% senior notes due March 2030. Subsequently, on March 5, 2020, we completed a tender offer to purchase $1.5 billion aggregate principal amount of senior notes using proceeds from the debt issuance and cash on hand. The tender offer consisted of $500 million of 3.50% senior notes due August 2023 and $1.0 billion of 3.80% senior notes due November 2025. This early debt repurchase resulted in a $168 million loss on extinguishment, which included a tender premium, unamortized discounts and costs on the retired notes, and other tender fees. These costs were included in "Loss on early extinguishment of debt" on our condensed consolidated statements of operations for the nine months ended September 30, 2020.
The $1.0 billion senior notes issued in March rank equally with our existing and future senior unsecured indebtedness, have semiannual interest payments, and have no sinking fund requirements. We may redeem some or all notes at any time at the applicable redemption prices, plus accrued and unpaid interest.
Note 7. Income Taxes
During the three months ended September 30, 2020, we recorded a total income tax provision of $18 million on a pre-tax loss of $1.0 million, resulting in an unusually high negative effective tax rate for the quarter. Our effective tax rate during the three months ended September 30, 2020 was impacted by the geographic mix of our earnings in conjunction with the immaterial loss this quarter. During the three months ended September 30, 2019, we recorded a total income tax provision of $76 million on pre-tax income of $372 million, resulting in an effective tax rate of 20.4%. Our effective tax rate during the three months ended September 30, 2019 was impacted by certain discrete tax benefits and the geographic mix of our earnings.
During the nine months ended September 30, 2020, we recorded a total income tax benefit of $265 million on a pre-tax loss of $3.0 billion, resulting in an effective tax rate of 8.9%. The effective tax rate for this period was primarily impacted by our first quarter of 2020 results, which included the impacts of the COVID-19 pandemic and OPEC+ disagreements which created an unprecedented disruption in the oil and gas industry. After evaluating the negative impact that these events were expected to have on our business outlook, we determined that it was more likely than not that certain foreign tax credits would not be realized. Accordingly, we recognized a valuation allowance on our deferred tax assets in the amount of $310 million during the first quarter of 2020. Additionally, we recorded $3.4 billion of impairments and other charges and a $168 million loss on extinguishment of debt during the nine months ended September 30, 2020, resulting in a $696 million tax benefit recognized during the period. Our effective tax rate during the nine months ended September 30, 2020 was also impacted by the geographic mix of our earnings. During the nine months ended September 30, 2019, we recorded a total income tax provision of $190 million on pre-tax income of $715 million, resulting in an effective tax rate of 26.6%. Our effective tax rate during this period was significantly impacted by the impairments and other charges recorded, as we did not recognize a corresponding financial statement tax benefit for the majority of these charges. Additionally, our effective tax rate was impacted by the geographic mix of our earnings.
See Note 2 for further information on these adverse market conditions and impairments and other charges recognized during the three and nine months ended September 30, 2020.
HAL Q3 2020 FORM 10-Q | 9
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
Note 8.7. Shareholders’ Equity
The following tables summarize our shareholders’ equity activity for the three and nine months ended September 30, 20202021 and September 30, 2019,2020, 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, 2019 | $ | 2,669 | | $ | 143 | | $ | (6,427) | | $ | 11,989 | | $ | (362) | | $ | 13 | | $ | 8,025 | |
| Comprehensive income (loss): | | | | | | | |
| Net income (loss) | 0 | | 0 | | 0 | | (1,017) | | 0 | | 2 | | (1,015) | |
| Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 11 | | 0 | | 11 | |
| Cash dividends ($0.18 per share) | 0 | | 0 | | 0 | | (158) | | 0 | | 0 | | (158) | |
| Stock repurchase program | 0 | | 0 | | (100) | | 0 | | 0 | | 0 | | (100) | |
| Stock plans | 0 | | (33) | | 115 | | 0 | | 0 | | 0 | | 82 | |
| Other | 0 | | 0 | | 0 | | 0 | | 0 | | (2) | | (2) | |
| Balance at March 31, 2020 | $ | 2,669 | | $ | 110 | | $ | (6,412) | | $ | 10,814 | | $ | (351) | | $ | 13 | | $ | 6,843 | |
| Comprehensive income (loss): | | | | | | | |
| Net loss | 0 | | 0 | | 0 | | (1,676) | | 0 | | (5) | | (1,681) | |
| Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 9 | | 0 | | 9 | |
| Cash dividends ($0.045 per share) | 0 | | 0 | | 0 | | (40) | | 0 | | 0 | | (40) | |
| Stock plans | (3) | | 15 | | 54 | | 0 | | 0 | | 0 | | 66 | |
| Other | 0 | | 0 | | 0 | | 0 | | 0 | | (1) | | (1) | |
| Balance at June 30, 2020 | $ | 2,666 | | $ | 125 | | $ | (6,358) | | $ | 9,098 | | $ | (342) | | $ | 7 | | $ | 5,196 | |
| Comprehensive income (loss): | | | | | | | |
| Net loss | 0 | | 0 | | 0 | | (17) | | 0 | | (2) | | (19) | |
| Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 2 | | 0 | | 2 | |
| Cash dividends ($0.045 per share) | 0 | | 0 | | 0 | | (40) | | 0 | | 0 | | (40) | |
| | | | | | | |
| Stock plans | 0 | | (102) | | 222 | | 0 | | 0 | | 0 | | 120 | |
| Other | 0 | | 0 | | 0 | | (54) | | 0 | | (2) | | (56) | |
| Balance at September 30, 2020 | $ | 2,666 | | $ | 23 | | $ | (6,136) | | $ | 8,987 | | $ | (340) | | $ | 3 | | $ | 5,203 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2020 | $ | 2,666 | | $ | — | | $ | (6,021) | | $ | 8,691 | | $ | (362) | | $ | 9 | | $ | 4,983 | |
| Comprehensive income (loss): | | | | | | | |
| Net income | — | | — | | — | | 170 | | — | | 1 | | 171 | |
| | | | | | | | |
| Cash dividends ($0.045 per share) | — | | — | | — | | (40) | | — | | — | | (40) | |
| | | | | | | | |
| Stock plans (a) | — | | 34 | | 144 | | (112) | | — | | — | | 66 | |
| Other | — | | — | | — | | — | | — | | (1) | | (1) | |
| Balance at March 31, 2021 | $ | 2,666 | | $ | 34 | | $ | (5,877) | | $ | 8,709 | | $ | (362) | | $ | 9 | | $ | 5,179 | |
| Comprehensive income (loss): | | | | | | | |
| Net income | — | | — | | — | | 227 | | — | | 3 | | 230 | |
| Other comprehensive income | — | | — | | — | | — | | 2 | | — | | 2 | |
| Cash dividends ($0.045 per share) | — | | — | | — | | (40) | | — | | — | | (40) | |
| Stock plans | — | | (8) | | 69 | | — | | — | | — | | 61 | |
| Other | — | | — | | — | | — | | — | | (3) | | (3) | |
| Balance at June 30, 2021 | $ | 2,666 | | $ | 26 | | $ | (5,808) | | $ | 8,896 | | $ | (360) | | $ | 9 | | $ | 5,429 | |
| Comprehensive income (loss): | | | | | | | |
| Net income | — | | — | | — | | 236 | | — | | 4 | | 240 | |
| | | | | | | |
| Cash dividends ($0.045 per share) | — | | — | | — | | (41) | | — | | — | | (41) | |
| | | | | | | |
| Stock plans (a) | — | | (2) | | 232 | | (164) | | — | | — | | 66 | |
| Other | — | | — | | — | | — | | — | | (1) | | (1) | |
| Balance at September 30, 2021 | $ | 2,666 | | $ | 24 | | $ | (5,576) | | $ | 8,927 | | $ | (360) | | $ | 12 | | $ | 5,693 | |
| | | | | | | | |
| (a) | In January and July of 2021, we issued common stock from treasury shares for the employee stock purchase plan and for restricted stock grants. As a result, additional paid in capital in January and July of 2021 were reduced below zero, which resulted in a reduction of retained earnings by $112 million and $164 million, respectively. Additional issuances from treasury shares could similarly impact additional paid in capital and retained earnings. |
HAL Q3 20202021 FORM 10-Q | 109
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
| | Millions of dollars | 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 | 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, 2018 | $ | 2,671 | | $ | 211 | | $ | (6,744) | | $ | 13,739 | | $ | (355) | | $ | 22 | | $ | 9,544 | | |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | $ | 2,669 | | $ | 143 | | $ | (6,427) | | $ | 11,989 | | $ | (362) | | $ | 13 | | $ | 8,025 | |
| Comprehensive income (loss): | Comprehensive income (loss): | | Comprehensive income (loss): | |
| Net income | 0 | | 0 | | 0 | | 152 | | 0 | | 0 | | 152 | | |
| Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 1 | | 0 | | 1 | | |
| Cash dividends ($0.18 per share) | 0 | | 0 | | 0 | | (157) | | 0 | | 0 | | (157) | | |
| Stock plans | 0 | | 13 | | 74 | | 0 | | 0 | | 0 | | 87 | | |
| Other | 0 | | 0 | | 0 | | 0 | | 0 | | (2) | | (2) | | |
| Balance at March 31, 2019 | $ | 2,671 | | $ | 224 | | $ | (6,670) | | $ | 13,734 | | $ | (354) | | $ | 20 | | $ | 9,625 | | |
| Comprehensive income (loss): | | |
| Net income | 0 | | 0 | | 0 | | 75 | | 0 | | 2 | | 77 | | |
| Net income (loss) | | Net income (loss) | — | | — | | — | | (1,017) | | — | | 2 | | (1,015) | |
| Other comprehensive income | Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 1 | | 0 | | 1 | | Other comprehensive income | — | | — | | — | | — | | 11 | | — | | 11 | |
| Cash dividends ($0.18 per share) | Cash dividends ($0.18 per share) | 0 | | 0 | | 0 | | (157) | | 0 | | 0 | | (157) | | Cash dividends ($0.18 per share) | — | | — | | — | | (158) | | — | | — | | (158) | |
| Stock repurchase program | Stock repurchase program | 0 | | 0 | | (100) | | 0 | | 0 | | 0 | | (100) | | Stock repurchase program | — | | — | | (100) | | — | | — | | — | | (100) | |
| Stock plans | Stock plans | (1) | | (166) | | 250 | | 0 | | 0 | | 0 | | 83 | | Stock plans | — | | (33) | | 115 | | — | | — | | — | | 82 | |
| Other | Other | 0 | | 0 | | 0 | | 0 | | 1 | | (6) | | (5) | | Other | — | | — | | — | | — | | — | | (2) | | (2) | |
| Balance at June 30, 2019 | $ | 2,670 | | $ | 58 | | $ | (6,520) | | $ | 13,652 | | $ | (352) | | $ | 16 | | $ | 9,524 | | |
| Balance at March 31, 2020 | | Balance at March 31, 2020 | $ | 2,669 | | $ | 110 | | $ | (6,412) | | $ | 10,814 | | $ | (351) | | $ | 13 | | $ | 6,843 | |
| Comprehensive income (loss): | Comprehensive income (loss): | | Comprehensive income (loss): | |
| Net income | 0 | | 0 | | 0 | | 295 | | 0 | | 1 | | 296 | | |
| Net loss | | Net loss | — | | — | | — | | (1,676) | | — | | (5) | | (1,681) | |
| Other comprehensive income | Other comprehensive income | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | Other comprehensive income | — | | — | | — | | — | | 9 | | — | | 9 | |
| Cash dividends ($0.18 per share) | 0 | | 0 | | 0 | | (158) | | 0 | | — | | (158) | | |
| Cash dividends ($0.045 per share) | | Cash dividends ($0.045 per share) | — | | — | | — | | (40) | | — | | — | | (40) | |
| | Stock plans | Stock plans | 0 | | 50 | | 40 | | 0 | | 0 | | 0 | | 90 | | Stock plans | (3) | | 15 | | 54 | | — | | — | | — | | 66 | |
| Other | Other | 0 | | 0 | | 0 | | 11 | | (1) | | 0 | | 10 | | Other | — | | — | | — | | — | | — | | (1) | | (1) | |
| Balance at September 30, 2019 | $ | 2,670 | | $ | 108 | | $ | (6,480) | | $ | 13,800 | | $ | (353) | | $ | 17 | | $ | 9,762 | | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 2,666 | | $ | 125 | | $ | (6,358) | | $ | 9,098 | | $ | (342) | | $ | 7 | | $ | 5,196 | |
| Comprehensive income (loss): | | Comprehensive income (loss): | |
| Net loss | | Net loss | — | | — | | — | | (17) | | — | | (2) | | (19) | |
| Other comprehensive income | | Other comprehensive income | — | | — | | — | | — | | 2 | | — | | 2 | |
| Cash dividends ($0.045 per share) | | Cash dividends ($0.045 per share) | — | | — | | — | | (40) | | — | | — | | (40) | |
| | Stock plans (a) | | Stock plans (a) | — | | (102) | | 222 | | (54) | | — | | — | | 66 | |
| Other | | Other | — | | — | | — | | — | | — | | (2) | | (2) | |
| Balance at September 30, 2020 | | Balance at September 30, 2020 | $ | 2,666 | | $ | 23 | | $ | (6,136) | | $ | 8,987 | | $ | (340) | | $ | 3 | | $ | 5,203 | |
| | (a) | | (a) | In July of 2020, we issued common stock from treasury shares for the employee stock purchase plan and for restricted stock grants. As a result, additional paid in capital in July of 2020 was reduced below zero, which resulted in a reduction of retained earnings by $54 million. Additional issuances from treasury shares could similarly impact additional paid in capital and retained earnings. |
Our Board of Directors has authorized a program to repurchase our common stock from time to time. DuringThere were no repurchases made under the program during the three and nine months ended September 30, 2020, under that program we repurchased approximately 7.4 million shares of our common stock for a total cost of $100 million, all of which were purchased in the first quarter of 2020.2021. Approximately $5.1 billion remained authorized for repurchases as of September 30, 2020.2021. From the inception of this program in February of 2006 through September 30, 2020,2021, we repurchased approximately 224 million shares of our common stock for a total cost of approximately $9.0 billion.
In the month of July 2020, we issued common stock from treasury shares under our employee stock purchase plan awards and for restricted stock grants. As a result, additional paid in capital was reduced below zero, which resulted in a reduction of retained earnings by $54 million. Additional issuances from treasury shares will similarly impact additional paid in capital and retained earnings.
Accumulated other comprehensive loss consisted of the following:
| | Millions of dollars | Millions of dollars | September 30,
2020 | December 31,
2019 | Millions of dollars | September 30,
2021 | December 31,
2020 |
| Defined benefit and other postretirement liability adjustments | Defined benefit and other postretirement liability adjustments | $ | (203) | | $ | (214) | | Defined benefit and other postretirement liability adjustments | $ | (224) | | $ | (226) | |
| Cumulative translation adjustments | Cumulative translation adjustments | (84) | | (82) | | Cumulative translation adjustments | (85) | | (83) | |
| | Other | Other | (53) | | (66) | | Other | (51) | | (53) | |
| Total accumulated other comprehensive loss | Total accumulated other comprehensive loss | $ | (340) | | $ | (362) | | Total accumulated other comprehensive loss | $ | (360) | | $ | (362) | |
HAL Q3 20202021 FORM 10-Q | 1110
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
Note 9.8. Commitments and Contingencies
The Company isWe are subject to various legal or governmental proceedings, claims or investigations, including personal injury, property damage, environmental, commercial, and tax-related 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 litigation, 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 agreements with financial institutions under which approximately $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of September 30, 2020.2021. 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 10.9. 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 sharessecurities represent potential common sharespotentially dilutive securities which are excluded from the computation of diluted income or loss per share as their impact would be antidilutive.
A reconciliation of the number of shares used for the basic and diluted income per share computations is as follows:
| | | | | | | | | | | | | | |
| Three Months Ended
September 30 | | Nine Months Ended
September 30 | |
| Millions of shares | 2020 | 2019 | 2020 | 2019 |
| Basic weighted average common shares outstanding | 882 | | 876 | | 879 | | 874 | |
| Dilutive effect of awards granted under our stock incentive plans | 0 | | 0 | | 0 | | 1 | |
| Diluted weighted average common shares outstanding | 882 | | 876 | | 879 | | 875 | |
| | | | |
| Antidilutive shares: | | | | |
| Options with exercise price greater than the average market price | 26 | | 26 | | 27 | | 23 | |
| Shares which are antidilutive due to net loss position | 1 | | 0 | | 1 | | 0 | |
| Total antidilutive shares | 27 | | 26 | | 28 | | 23 | |
| | | | | | | | | | | | | | |
| Three Months Ended
September 30 | Nine Months Ended
September 30 |
| Millions of shares | 2021 | 2020 | 2021 | 2020 |
| Basic weighted average common shares outstanding | 894 | | 882 | | 891 | | 879 | |
| Dilutive effect of awards granted under our stock incentive plans | — | | — | | — | | — | |
| Diluted weighted average common shares outstanding | 894 | | 882 | | 891 | | 879 | |
| | | | |
| Antidilutive shares: | | | | |
| Options with exercise price greater than the average market price | 21 | | 26 | | 22 | | 27 | |
| Options which are antidilutive due to net loss position | — | | 1 | | — | | 1 | |
| Total antidilutive shares | 21 | | 27 | | 22 | | 28 | |
Note 11.10. 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | | December 31, 2019 | | | |
| Millions of dollars | Level 1 | Level 2 | Total fair value | Carrying value | | Level 1 | Level 2 | Total fair value | Carrying value |
| Total debt | $ | 9,786 | | $ | 666 | | $ | 10,452 | | $ | 9,827 | | | $ | 11,093 | | $ | 868 | | $ | 11,961 | | $ | 10,327 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Millions of dollars | Level 1 | Level 2 | Total fair value | Carrying value | | Level 1 | Level 2 | Total fair value | Carrying value |
| Total debt | $ | 10,896 | | $ | 147 | | $ | 11,043 | | $ | 9,136 | | | $ | 10,856 | | $ | 700 | | $ | 11,556 | | $ | 9,827 | |
The totalIn the first nine months of 2021, the fair value of our debt decreased duringas a result of repayment of senior debentures and notes, the first nine monthseffect of 2020, primarily due to the substantial decline in global demand for oil causedwhich was partially offset by the COVID-19 pandemic and subsequent mitigation efforts as described in Note 2. These events have collectively increased the credit spreads for all our publicly traded bonds, thus reducing the associated fair value. Additionally, the fair value andlower debt yields. The carrying value of our debt decreased inas a result of the first nine monthsrepayment of 2020 due to an early repurchase of senior debentures and notes. See Note 6 for further information.
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
HAL Q3 2020 FORM 10-Q | 12
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
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
HAL Q3 2021 FORM 10-Q | 11
| | | | | |
| Part I. Item 1 | Notes to Condensed Consolidated Financial Statements |
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 0no debt categorized within level 3 on the fair value hierarchy.
HAL Q3 20202021 FORM 10-Q | 1312
| | | | | | | | |
| | 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:
•our Completion and Production segment delivers cementing, stimulation, intervention, pressure control, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Artificial Lift, and Pipeline and Process Services.
•our Drilling and Evaluation segment provides field and reservoir modeling, drilling, fluids and specialty chemicals, 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 more thanapproximately 40,000 employees, we operate in more than 8070 countries around the world, and our corporate headquarters areis 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:
-deliver profitable growth in our international business;
-maximize cash flows in our North America business;
-accelerate the deployment and integration of our digital technologies, both internally and with our customers;
-improve capital efficiency by advancing our technologies and making strategic choices that lower our capital expenditure profile; and
-actively participate in advancing a sustainable energy future.
The following charts depict the company's revenue split between our two operating segments and our four primary geographic regions for the quarter ended September 30, 2020.2021.
HAL Q3 2021 FORM 10-Q | 13
| | | | | | | | |
| | Part I. Item 2 | Executive Overview |
Market conditions update and COVID-19 pandemic and market conditions update
The oil and gas industry experienced unprecedented disruption during 2020continued to be impacted from shutdowns as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic, specifically in Asia. In spite of COVID-19 interruptions from mobility restrictions and subsequent mitigation efforts. This disruption created a substantial surplus of oildaily precautions continuing to remain in place, business activity around the world has adjusted and declines in oil prices.continues to improve. West Texas Intermediate (WTI) oil spot prices decreased during the first quarter of 2020 from a high of $63 per barrel in early January of 2020 to approximately $21 per barrel by the end of the first quarter of 2020. Although prices have recovered modestly, WTI oil spot prices averagedto pre-pandemic levels, averaging approximately $41$71 per barrel during the third quarter of 2020, which is approximately 28% less than the average price per barrel during 2019. As a result, oil and gas activity has declined significantly during 2020, with the global rig count sinking to the lowest level since 1973. 2021. The U.S. land average rig count continuedcontinues to declinebe well below pre-pandemic levels, but it did rise 11% in the third quarter of 2020, dropping 35%2021 compared to the second quarter of 2021. The Brent crude oil price averaged over $73 per barrel during the third quarter of 2021 and the international average rig count increased 5% as compared to the second quarter of 2021. With the current shortage of other sources of energy, and the economic growth associated with what appears to be a global emergence from the pandemic, the demand for and price of oil has improved. We believe that global oil demand will continue increasing in the fourth quarter of 2021 and into 2022.
Financial results
The following graph illustrates our revenue and operating margins for each operating segment for the third quarter of 2020 and 2021.
During the third quarter of 2021, we generated total company revenue of $3.9 billion, a 30% increase as compared to the third quarter of 2020. We reported operating income of $446 million during the third quarter of 2021 that included $12 million of special items. This compares to operating income of $142 million during the third quarter of 2020 which was impacted by $133 million of severance and other charges. Our Completion and Production segment revenue increased 36% in the third quarter of 2021 as compared to the third quarter of 2020, primarily due to increased pressure pumping services in North America land. Our Drilling and Evaluation segment revenue increased 23% in the third quarter of 2021 as compared to the third quarter of 2020, driven primarily by improvements in drilling-related services activity in the Western Hemisphere. Operating margins in both of our operating segments improved in the third quarter of 2021 as compared to the third quarter of 2020 on higher commodity prices driving increased activity, higher utilization, and better operating leverage from our structural cost reductions implemented during 2020.
In North America, our revenue increased 64% in the third quarter of 2021, as compared to the third quarter of 2020, driven by increased pressure pumping services in North America land, as well as increased activity in most other product service lines. Both of our segments' revenue increased over 50% in the third quarter of 2021 compared to the third quarter of 2020, while the internationalaverage North America rig count dropped 12% overmore than doubled for the same period. Although the North America rig count is increasing, it is still below pre-pandemic levels.
Revenue in our international markets increased 13% in the third quarter of 2021, as compared to the third quarter of 2020, primarily driven by improvements in most product service lines in Latin America, particularly Argentina, drilling-related services, project management activity, and pipeline services in Middle East/Asia, and cementing and well intervention in Europe/Africa/CIS, partially offset by lower completion tool sales in the Eastern Hemisphere.
HAL Q3 20202021 FORM 10-Q | 14
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| | Part I. Item 2 | Executive Overview |
Financial resultsSustainability and Energy Advancement
The pandemicWe continue to pursue our strategic initiatives around advancing cleaner, affordable energy, and supporting sustainable energy advancements, using innovation and technology to reduce the disruption in theenvironmental impact of producing oil and gas. As such, we are continuing to develop and deploy low-carbon solutions to help oil and gas industry has had a material adverse effect onoperators lower their current emissions profiles while also using our business, liquidity, financial condition, and resultsexisting technologies in renewable energy applications. In addition, Halliburton Labs, our energy transition accelerator, announced its inaugural group of operations. The financial results forparticipating companies in the thirdfirst quarter of 2020 reflect the reduced activity experienced in various locations around the world. The following graph illustrates our revenue2021 and operating margins for each operating segment for the third quarter of 2019 and 2020.
During the third quarter of 2020, we generated total company revenue of $3.0 billion, a 46% decrease as compared to the third quarter of 2019. We reported operating income of $142 million during the third quarter of 2020 which was impacted by the decrease in revenue and $133 million of severance and other charges. This compares to operating income of $536 million during the third quarter of 2019. Our Completion and Production segment revenue decreased 55% from the third quarter of 2019, primarily due to a global reduction in pressure pumping activity and well intervention services, coupled with lower artificial lift and completion tool sales in North America land. Our Drilling and Evaluation segment revenue decreased 31% from the third quarter of 2019, driven by global reductions in drilling-related services, wireline activity, testing services, and lower project management in Middle East/Asia. Even with decreased activity, our operating margins in both of our operating segments improvedannounced four additional participating companies in the third quarter of 2020 as compared2021, doubling the number of participating companies to the third quarter of 2019 as we implemented initiatives to lower our cost of service delivery and achieve other cost savings.eight.
In North America, our revenue decreased 67% in the third quarter of 2020, as compared to the third quarter of 2019, driven by reduced activity and pricing in North America land, primarily associated with stimulation activity, well construction, artificial lift, wireline, and completion tool sales, coupled with lower activity in the Gulf of Mexico and Canada. Although our third quarter of 2020 revenue declined compared to the second quarter of 2020, our Drilling and Evaluation division outperformed the sequential rig count declines, and our Completions and Production division's operating income grew and drove overall margin improvement. The average U.S. land rig count fell by approximately 36% since the second quarter of 2020 and 73% compared to the third quarter of 2019, but is recovering into October 2020 after the hurricane threats.
Revenue in our international markets decreased 23% in the third quarter of 2020, as compared to the third quarter of 2019, primarily driven by reduced activity across Argentina, Ecuador, and Colombia, as well as reduced wireline activity in Brazil, decreased activity across multiple service lines in the Middle East and Europe/Africa/CIS, and lower project management and drilling services in Asia, partially offset by increased drilling-related services in the North Sea. Both our Drilling and Evaluation and Completion and Production divisions are now earning the majority of their revenue in international markets. Despite declines in revenue, we outperformed the 12% sequential international rig count declines in the third quarter of 2020. Furthermore, stimulation activity, drilling-related services, well intervention services, pipeline services, and software sales demonstrated margin improvement in the third quarter of 2020 compared to the third quarter of 2019.
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| | Part I. Item 2 | Executive Overview |
Business outlook
Although the continued uncertainty around COVID-19 mitigation and re-opening efforts make demand for oil and gas difficult to project, we believe demand recovery is beginning to unfold. The average barrel per day of petroleum and liquid fuels consumed worldwide increased more than 10 million barrels per day from the second to the third quarter 2020. This increase in demand, taken together with under-investment in global oil production capacity, recent success of OPEC+ in imposing production limits on its members and expectations for effective COVID-19 treatments seem to be providing support for improved commodity prices. Nonetheless, the price of oil remains low compared to recent years and reduced demand for our products and services could continue as our customers adjust their operations in response to the prevailing prices and their business outlook. As operators in North America and the international markets look for ways to reduce spending, we will continue to work to improve efficiencies that help both our customers and our company optimize costs. We have taken significant steps to reduce our fixed costs through our service delivery improvement strategy, including reducing headcount, consolidating our facilities, removing layers of operations management in North America, streamlining our support functions, and reducing maintenance cost per horsepower-hour. We cannot predict the length of time that the market disruptions resulting from the COVID-19 pandemic and efforts to mitigate its effects will continue, the ultimate impact on our business, or the pace or extent of any subsequent recovery. Nevertheless, we will maintain our commitment to safety and service quality for our customers and continue to focus on generating returns and cash flow.
In North America, we expect production to remain around current levels for the foreseeable future with slower growth going forward. With shrinking demand for shale oil and limited access to the capital markets, we continue to expect a more disciplined industry with stronger and fewer operators and service companies. North America land completions activity is expected to increase by a double-digit percentage in the fourth quarter as operators deplete their drilled but uncompleted well inventory, followed by a seasonal deceleration at the end of the year. However, we anticipate rig count activity will lag behind the increase in completions activity and may not increase materially before year-end. We anticipate a greater balance between horsepower supply and demand as the United States market achieves more stable production levels.
Internationally, we see the pace of activity declines slowing and believe we are getting close to the activity bottom. We see service companies being prudent with their capital spend which is resulting in limited excess equipment and should lead to a tighter market, even without an increase in new activity. We expect that as oil demand recovers, international producers will have the opportunity to regain market share as a result of the declining United States oil production, leading to healthy activity levels internationally. As demand starts to improve and outgrow supply, it should encourage international investments in both oil and gas.
During the first nine months of 2020, we had $510 million of capital expenditures, a decrease of 57% from the first nine months of 2019, as we adjusted to current market conditions. Our full year 2020 capital expenditures are expected to be less than $800 million, a decrease of approximately 48% from 2019. We believe this level of spend will still allow us to invest in our key strategic areas, while continuing to rationalize our business to current market conditions. We will continue to maintain capital discipline and monitor the rapidly changing market dynamics and adjust our capital expenditures accordingly.
Under the adverse market conditions we have faced in 2020, we have taken swift actions that we believe will not only temper the impact of activity declines on our financial performance, but also will further boost our earnings power and cash flow generation ability. We plan to continue executing the following strategies through the end of 2020:
•collaborating with, and engineering solutions to maximize asset value for our customers;
•directing capital and resources to projects around the world that we believe will provide the best opportunity to generate acceptable returns;
•accelerating our adoption of digital technologies to grow our business, and to drive performance, operational efficiencies and cost reductions for our customers and internally;
•deploying differentiated technology that helps our customers reduce reservoir uncertainty and improve well productivity;
•striving to achieve superior returns and cash flow generation for our shareholders; and
•committing to a sustainable energy future in which oil and gas continues to play a critical role.
Our operating performance and business outlookliquidity are described in more detail in “Business Environment and Results of Operations.”
HAL Q3 2020 FORM 10-Q | 16
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| | Part I. Item 2 | Executive Overview |
Financial markets, liquidity, and capital resources
We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. In March 2020, we retired $500 million in total debt and extended the maturity for $1.0 billion of senior notes out to 2030. We have focused on debt reduction over the last few years, reducing total debt by approximately $2.6 billion since 2016. We believe we have a very manageable debt maturity profile, with approximately $1.3 billion coming due through 2024. As of September 30, 2020, we had $2.1 billion of cash and equivalents and $3.5 billion of available committed bank credit under our revolving credit facility. We believe this provides us with sufficient liquidity to address the challenges and opportunities of the current market. For additional information on market conditions, see “Liquidity"Liquidity and Capital Resources”Resources" and “Business Environment and Results of Operations.”
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| | Part I. Item 2 | Liquidity and Capital Resources |
LIQUIDITY AND CAPITAL RESOURCES
As of both September 30, 2021 and December 31, 2020, we had $2.1$2.6 billion of cash and equivalents, compared to $2.3 billion of cash and equivalents at December 31, 2019.equivalents.
Significant sources and uses of cash during the first nine months of 20202021
Sources of cash:
•Cash flows from operating activities were $1.2 billion. This included a positive impact from the primary components of our working capital (receivables, inventories, and accounts payable) of a net $476 million, primarily associated with lower customer receivables, offset by approximately $316 million of cash payments primarily for severance.$81 million.
Uses of cash:
•In March 2020,February of 2021, we executed two transactions resulting in a reductionrepaid the $185 million principal balance of net debt byour 8.75% senior debentures at maturity.
•In August of 2021, we redeemed the entire $500 million. We issued $1.0 billionmillion aggregate principal amount outstanding of our 3.25% senior notes and used the net proceeds from issuance along with cash on hand to repurchase $1.5 billion aggregate principal amount of senior notes. Inclusive of the tender premium and fees, these transactions resulted in a net payment of approximately $654 million.at par.
•Capital expenditures were $510 million.$483 million, a decrease of 5% from the first nine months of 2020, as we adjusted to market conditions.
•We paid $238$121 million in dividends to our shareholders.
•We repurchased approximately 7.4 million shares of our common stock in early March, largely before the significant decline in oil prices, under our share repurchase program at a total cost of $100 million.
Future sources and uses of cash
We manufacture most of our own equipment, which allows us flexibility to increase or decrease our capital expenditures based on market conditions. CapitalWe expect capital spending for the full year 2020 is currently expected to2021 will be less than $800 million, a decreaseapproximately 5-6% of approximately 48% from 2019.revenue. We believe this level of spend will still allow us to invest in accordance with our key strategic areas,priorities, while continuing to rationalize our business to current market conditions. We willintend to continue to maintain capital discipline, and monitor the rapidly changing market dynamics, and adjust our capital spendspending accordingly.
Based on our market outlook, we reduced ourOur quarterly dividend rate in the second quarter of 2020 from $0.18 per common share tois $0.045 per common share, and remained at this amount during the third quarter of 2020, reducing cash outflows byor approximately $120 million per quarter.$40 million. We will continue to maintain our focus on liquidity and review our quarterly dividend considering our priorities of future debt reduction and, as market conditions evolve, reinvesting in our business.
Our Board of Directors has authorized a program to repurchase our common stock from time to time. No repurchases occurred during the third quarter of 2021 under this program. Approximately $5.1 billion remained authorized for repurchases as of September 30, 20202021 and may be used for open market and other share purchases.
Other factors affecting liquidity
Financial position in current market. As of September 30, 2020,2021, we had $2.1$2.6 billion of cash and equivalents and $3.5 billion of available committed bank credit under our revolving credit facility. We believe we have a manageable debt maturity profile, with approximately $1.6 billion coming due through 2026. 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, dividends, if any, and contingent liabilities.
Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of September 30, 2020.2021. 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.
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 negative 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 negativestable outlook.
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| | Part I. Item 2 | Liquidity and Capital Resources |
Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to risk that our customers delayingmay delay or failingfail 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. Given the nature and significance of the pandemic and disruption in the oil and gas industry, we have experienced delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations and consolidated financial condition.
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| | Part I. Item 2 | Liquidity and Capital Resources |
Receivables from our primary customer in Mexico accounted for approximately 10% of our total receivables as of September 30, 2021. While we have experienced payment delays in Mexico, these 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 Q3 2021 FORM 10-Q | 17
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| | Part I. Item 2 | Business Environment and Results of Operations |
BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS
We operate in more than 8070 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 nine months of 2020,2021, based upon the location of the services provided and products sold, 38%40% of our consolidated revenue was from the United States, compared to 53%38% of consolidated revenue from the United States in the first nine months of 2019.2020. No other country accounted for more than 10% of our revenue.
Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, sanctions, expropriation or other governmental actions, inflation, changes in foreign currency exchange rates, foreign currency exchange restrictions and highly inflationary currencies, as well as other geopolitical factors. We believe the geographic diversification of our business activities reduces the risk that an interruption of operations in any one country, other than the United States, would be materially adverse to our consolidated results of operations.
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. The COVID-19 pandemic and efforts to mitigate its effect have had a substantial negative impact on the global economy and demand for oil. As discussed earlier, although there are signs of improvement in many areas around the world, the potential for new lockdowns and other mitigation efforts to deal with an increase in infection rates in certain areas remains a key risk for oil demand.
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 credit,capital, government regulation, and global stability, which together drive worldwide drilling and completions activity. Additionally, many of our customers in North America have shifted their strategy from production growth to operating within cash flow and generating returns. 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.
Traditionally, the North America market recovers from downturns in the industry quicker than the international markets. We have started to see this play out as rig counts have recovered faster in 2021 in North America than internationally. We would expect to continue to see this dynamic in 2022.
The table below shows the average oil and natural gas prices for WTI, United Kingdom Brent crude oil, and Henry Hub natural gas. Commodity prices dramatically decreased during the latter part of the first quarter of 2020 due to the dual impact of the COVID-19 pandemic and over-supply of oil from the inability of OPEC+ to agree on production cuts in the first quarter of 2020. Although prices have increased substantially since the end of the first quarter of 2020, they have not returned to 2019 levels or the levels at the beginning of 2020.
| | | | | | | | | | | | |
| Three Months Ended
September 30 | | Year Ended
December 31
| |
| 2020 | 2019 | 2019 | |
Oil price - WTI (1) | $ | 40.89 | | $ | 56.37 | | $ | 56.98 | | |
Oil price - Brent (1) | 42.96 | | 61.93 | | 64.36 | | |
Natural gas price - Henry Hub (2) | 2.00 | | 2.38 | | 2.54 | | |
(1) Oil spot price measured in dollars per barrel. (2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu. | | | | |
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30 | Year Ended
December 31 |
| | 2021 | 2020 | 2020 | |
Oil price - WTI (1) | $ | 70.62 | | $ | 40.89 | | $ | 39.23 | | |
Oil price - Brent (1) | 73.47 | | 42.96 | | 41.76 | | |
Natural gas price - Henry Hub (2) | 4.36 | | 2.00 | | 2.04 | | |
| | | | | |
| (1) | Oil price measured in dollars per barrel. | |
| (2) | Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu. | |
HAL Q3 20202021 FORM 10-Q | 2018
| | | | | | | | |
| | Part I. Item 2 | Business Environment and Results of Operations |
The historical average rig counts based on the weekly Baker Hughes rig count data were as follows:
| | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30 | | Nine Months Ended
September 30 | | Year Ended
December 31
| |
| 2020 | 2019 | 2020 | 2019 | 2019 | |
| U.S. Land | 242 | | 894 | | 460 | | 961 | | 920 | | |
| U.S. Offshore | 12 | | 26 | | 16 | | 23 | | 23 | | |
| Canada | 47 | | 132 | | 90 | | 132 | | 134 | | |
| North America | 301 | | 1,052 | | 566 | | 1,116 | | 1,077 | | |
| International | 731 | | 1,144 | | 880 | | 1,094 | | 1,098 | | |
| Worldwide total | 1,032 | | 2,196 | | 1,446 | | 2,210 | | 2,175 | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30 | Nine Months Ended
September 30 | Year Ended
December 31 |
| 2021 | 2020 | 2021 | 2020 | 2020 |
| U.S. Land | 485 | | 242 | | 435 | | 460 | | 418 | |
| U.S. Offshore | 11 | | 12 | | 15 | | 16 | | 15 | |
| Canada | 151 | | 47 | | 122 | | 90 | | 89 | |
| North America | 647 | | 301 | | 572 | | 566 | | 522 | |
| International | 772 | | 731 | | 735 | | 880 | | 825 | |
| Worldwide total | 1,419 | | 1,032 | | 1,307 | | 1,446 | | 1,347 | |
The oil and gas industry has experienced unprecedented disruption during 2020 as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic and subsequent mitigation efforts. This disruption created a substantial surplus of oil and declines in oil prices. WTI oil spot prices decreased during the first quarter of 2020 from a high of $63 per barrel in early January of 2020 to approximately $21 per barrel by the end of the first quarter of 2020. Although prices have recovered modestly, WTI oil spot prices averaged approximately $41 per barrel during the third quarter of 2020, which is approximately 28% less than the average price per barrel during 2019. As a result, oil and gas activity has declined significantly during 2020, with the global rig count sinking to the lowest level since 1973. The U.S. average rig count continued to decline in the third quarter of 2020, dropping 35% compared to the second quarter of 2020, while the international rig count dropped 12% over the same period.
In the United States Energy Information Administration (EIA) October 20202021 "Short Term Energy Outlook," the EIA projects average WTI prices to be $41average $78 per barrel in the fourth quarter of 2020,2021, and increase to $45$68 per barrel in 2021.for the full year 2021 and 2022. The EIA's report projects Brent oil prices are projected to average $42$81 per barrel in the fourth quarter of 2020 and rise to $472021, with a full year 2021 average of $71 per barrel, in 2021.
The EIA projects crude oil production in the United States on an annual average basis to fall from 12.2 million barrelsa rise of approximately $29 per day in 2019 to 11.5 million barrels per day in 2020, a 6% decrease from 2019, and to 11.1 million barrels per day in 2021. The International Energy Agency's (IEA) October 2020 "Oil Market Report" reports global oil demand rose 3.4 million barrels per day in July 2020barrel as compared to June 2020, as COVID-19 restrictions eased and summer holidays in the northern hemisphere supported a rise in transport fuel demand. According to the IEA, a second wave of COVID-19 cases and new movement restrictions are now slowing demand growth.full year 2020. The IEA's forecastedEIA's full year projection for 2022 is that Brent oil demand for the calendar year 2020, is unchanged at 91.7 million barrelsprices will average $72 per day, down 8.4 million barrels per day, or 8% from 2019. The IEA's forecasted oil demand for 2021 is 97.2 million barrels per day, a gain of 5.5 million barrels per day compared to 2020.barrel.
The Henry Hub natural gas spot price averaged $4.36 per MMBtu in the third quarter of 2021 as compared to $2.00 per MMBtu in the third quarter of 2020, as compared to $2.38an increase of $2.36 per MMBtu in the third quarter of 2019, a decrease of $0.38 per MMBtu, or 16%.MMBtu. The EIA October 20202021 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.68$4.17 per MMBtu for the full year 2021, and $4.01 per MMBtu in 2022.
The International Energy Agency's (IEA) October 2021 "Oil Market Report" forecasts global oil demand to reach 96.1 million barrels per day in 2021, an increase of 5.2 million barrels per day from 2020 and to rise by an additional 3.2 million barrels in 2022. The EIA projects crude oil production in the United States will average 11.0 million barrels per day in 2021, approximately a 3% decrease from 2020, and to average 11.7 million barrels per day in 2022, a 6% increase from 2021, as tight oil production rises in the United States. The EIA anticipates that production will grow in 2022 as a result of operators increasing rig counts, which are expected to more than offset production decline rates.
In spite of COVID-19 interruptions from mobility restrictions and daily precautions continuing to remain in place, business activity around the world has adjusted and continues to improve. We expect the balancing of global supply and demand to continue to tighten, resulting in a strong commodity price environment. In the international markets, activity increases continued in the third quarter of 2021 and we believe activity will accelerate into year-end. In North America, the bifurcation between publicly traded and private exploration and production (E&Ps) company activity continued in the third quarter of 2021. Publicly traded E&Ps generally remain committed to their spending plans for 2021, while private E&Ps, which operate about 60% of the U.S. land rig count, are generally increasing activity in an effort to continue to take advantage of a stronger commodity price environment. Drilled but uncompleted well counts (DUCs) in North America reached the lowest level since 2013, as operators depleted the surplus of DUCs accumulated in 2020. Next year we expect North America E&Ps to drill and complete more new wells to offset steep base decline rates and deliver production into the market. In North America, we expect moderate pricing and activity improvements in drilling and completions to drive further growth in the fourth quarter of 2020 and $3.13 per MMBtu in 2021. The EIA expects that monthly average spot prices will remain higher than $3.00 MMBtu throughout 2021, up from a forecast average of $2.07 MMbtu in 2020.
In 2022, we expect international activity momentum to accelerate and international pricing to move higher in certain geographies as a result of higher activity. While large tenders remain competitive, we are already seeing modest price increases on discrete work in underserved markets. In North America, operations
The average U.S. land rig countwe expect E&P spending to increase, including net pricing gains for not only our low-emissions equipment but also the third quarterrest of 2020 was down 73%, compared to the third quarter of 2019. The pandemicour fracturing fleet and disruption in the oilfor our drilling, cementing, drill bits, and gas industry has particularly affected the North America market but the U.S. rig count is showing improvement in October. The EIA expects United States crude oil production to generally decline because new drilling activity will not generate enough production to offset declines from existing wells. However, we believe that our strategic priority for a leaner and more profitable North America business will enable us to successfully navigate through this market contraction. We will continue to focus on profit, not market share, in this more consolidated market.
International operations
The average international rig count for the third quarter of 2020 was down 36% compared to the third quarter of 2019, although there is evidence that activity declines are slowing. We intend to continue to invest in the development of new technologies and strategically fund international growth as the anticipated industry recovery unfolds. Uncertainty is at heightened levels because mitigation and reopening efforts related to COVID-19 continue to evolve. Reduced economic activity related to the COVID-19 pandemic has caused changes in energy demand and supply patterns in 2020 and will continue to affect theseartificial lift businesses.
HAL Q3 20202021 FORM 10-Q | 21
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| | Part I. Item 2 | Business Environment and Results of Operations |
patterns in the future as recent increases in cases of COVID-19 in some countries have led to some renewed government imposed restrictions, which could also be contributing to some downward pressure on crude oil prices. The EIA expects global oil inventory draws to decrease in the fourth quarter of 2020 before markets become more balanced in 2021. Despite expected inventory draws in the coming months, the EIA expects high inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices for the rest of 2020 and continuing into 2021.
Venezuela. The general license issued by the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury, which allowed us to continue operating in Venezuela despite OFAC sanctions imposed against the Venezuelan energy industry, was set to expire in July 2019 and had been extended several times. In April 2020, OFAC issued an updated general license. Effective April 21, 2020, the license prohibits us from performing most of our operations in the country. In particular, we are prohibited from performing activities associated with: (a) the drilling, lifting, or processing of, purchase or sale of, or transport or shipping of any Venezuelan-origin petroleum or petroleum products; and (b) the design, construction, installation, repair, or improvement of any wells or other facilities or infrastructure in Venezuela or the purchasing or provision of any goods or services, except as required for safety. Through December 1, 2020, we are only permitted to perform certain transactions and activities necessary for (i) safety or the preservation of assets in Venezuela or (ii) the winding down of operations, contracts or other agreements in Venezuela, along with other administrative activities. Consequently, we have ceased our primary operations in Venezuela in order to comply with the sanctions. It is unlikely that we will be able to remove our assets that remain in Venezuela and those assets may be expropriated. Since we have previously written down all of our investment in Venezuela and have maintained limited operations in this country during the general license period, we do not expect the expiration of the license to have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
HAL Q3 2020 FORM 10-Q | 2219
| | | | | |
| Part I. Item 2 | Results of Operations in 20202021 Compared to 20192020 (QTD) |
RESULTS OF OPERATIONS IN 20202021 COMPARED TO 20192020
Three Months Ended September 30, 20202021 Compared with Three Months Ended September 30, 2019
| | | | | | | | | | | | | | |
| Revenue: | Three Months Ended
September 30 | | Favorable | Percentage |
| Millions of dollars | 2020 | 2019 | (Unfavorable) | Change |
| Completion and Production | $ | 1,574 | | $ | 3,506 | | $ | (1,932) | | (55) | % |
| Drilling and Evaluation | 1,401 | | 2,044 | | (643) | | (31) | |
| Total revenue | $ | 2,975 | | $ | 5,550 | | $ | (2,575) | | (46) | % |
| | | | |
| By geographic region: | | | | |
| North America | $ | 984 | | $ | 2,949 | | $ | (1,965) | | (67) | % |
| Latin America | 380 | | 608 | | (228) | | (38) | |
| Europe/Africa/CIS | 649 | | 831 | | (182) | | (22) | |
| Middle East/Asia | 962 | | 1,162 | | (200) | | (17) | |
| Total revenue | $ | 2,975 | | $ | 5,550 | | $ | (2,575) | | (46) | % |
| | | | | | | | | | | | | | |
| Operating income (loss): | Three Months Ended
September 30 | | Favorable | Percentage |
| Millions of dollars | 2020 | 2019 | (Unfavorable) | Change |
| Completion and Production | $ | 212 | | $ | 446 | | $ | (234) | | (52) | % |
| Drilling and Evaluation | 105 | | 150 | | (45) | | (30) | |
| Total | 317 | | 596 | | (279) | | (47) | |
| Corporate and other | (42) | | (60) | | 18 | | 30 | |
| Impairments and other charges | (133) | | — | | (133) | | n/m |
| Total operating income | $ | 142 | | $ | 536 | | $ | (394) | | (74)% |
| n/m = not meaningful | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| Revenue: | Three Months Ended
September 30 | Favorable | Percentage |
| Millions of dollars | 2021 | 2020 | (Unfavorable) | Change |
| Completion and Production | $ | 2,136 | | $ | 1,574 | | $ | 562 | | 36 | % |
| Drilling and Evaluation | 1,724 | | 1,401 | | 323 | | 23 | |
| Total revenue | $ | 3,860 | | $ | 2,975 | | $ | 885 | | 30 | % |
| | | | |
| By geographic region: | | | | |
| North America | $ | 1,615 | | $ | 984 | | $ | 631 | | 64 | % |
| Latin America | 624 | | 380 | | 244 | | 64 | |
| Europe/Africa/CIS | 676 | | 649 | | 27 | | 4 | |
| Middle East/Asia | 945 | | 962 | | (17) | | (2) | |
| Total revenue | $ | 3,860 | | $ | 2,975 | | $ | 885 | | 30 | % |
| | | | | | | | | | | | | | |
| Operating income: | Three Months Ended
September 30 | Favorable | Percentage |
| Millions of dollars | 2021 | 2020 | (Unfavorable) | Change |
| Completion and Production | $ | 322 | | $ | 212 | | $ | 110 | | 52 | % |
| Drilling and Evaluation | 186 | | 105 | | 81 | | 77 | |
| Total | 508 | | 317 | | 191 | | 60 | |
| Corporate and other | (50) | | (42) | | (8) | | (19) | |
| Impairments and other charges | (12) | | (133) | | 121 | | n/m |
| Total operating income | $ | 446 | | $ | 142 | | $ | 304 | | 214% |
| n/m = not meaningful | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Consolidated revenue was $3.0$3.9 billion in the third quarter of 2020, a decrease2021, an increase of $2.6 billion,$885 million, or 46%30%, as compared to the third quarter of 2019.2020. Consolidated operating income was $446 million during the third quarter of 2021, a $304 million increase from operating income of $142 million during the third quarter of 2020, a 74% decrease from2020. The increase in revenue was primarily driven by higher activity and pricing for pressure pumping services and increases across multiple other product service lines in North America land and Latin America, as well as additional artificial lift activity in North America land. The Middle East/Asia region grew drilling-related services and project management activity, the Europe/Africa/CIS region improved cementing activity, wireline activity, testing services, and well intervention, while pipeline services increased in China and Russia. Partially offsetting these increases were lower completion tool sales in the Eastern Hemisphere, less stimulation activity in the Middle East/Asia, and decreased completion tool sales and stimulation activity in Canada. The increase in operating income was due in part to the negative impact on third quarter 2020 operating income from $133 million of $536 million duringimpairments and other charges that were included in the results of that quarter, while the third quarter of 2019. These results were primarily driven by lower2021 benefited from higher commodity prices driving increased activity, higher utilization, and pricing inimproved operating leverage from the structural cost reductions we implemented during 2020. Revenue from North America land, primarily associated with stimulation activity, well construction, and artificial lift, as well as reduced activity in Latin America. Operating results were also impacted by $133 millionwas 42% of severance and other charges during the third quarter of 2020. There were no impairments and other charges recordedconsolidated revenue in the third quarter of 2019. See Note 22021 compared to the condensed consolidated financial statements for further discussion on these charges. Revenue from North America was 33% of consolidated revenue in the third quarter of 2020 compared to 53% of consolidated revenue in the third quarter of 2019.2020.
Operating Segments
Completion and Production
Completion and Production revenue in the third quarter of 20202021 was $1.6$2.1 billion, a decreasean increase of $1.9 billion,$562 million, or 55%36%, when compared to the third quarter of 2019,2020, while operating income was $212$322 million, a decreasean increase of $234$110 million, or 52%. These results were primarily due to a global reductionan increase in pressure pumping activityservices and well intervention services, coupled with lower artificial lift activity in North America land, as well as multiple product service lines in Latin America, and additional completion tool sales in North America land.
Drillingthe Western Hemisphere. In addition, well intervention services increased globally, pipeline services improved in China and Evaluation
DrillingRussia, and Evaluation revenue in the third quarter of 2020 was $1.4 billion, a decrease of $643 million, or 31% when compared to the third quarter of 2019, while operating income was $105 million, a decrease of $45 million, or 30%. These results were driven by global reductions in drilling-related services, wireline activity, and testing services, and lower project management in Middle East/Asia.
HAL Q3 20202021 FORM 10-Q | 2320
| | | | | |
| Part I. Item 2 | Results of Operations in 20202021 Compared to 20192020 (QTD) |
services increased in Europe/Africa/CIS. Partially offsetting the overall increase were decreased completion tool sales in the Eastern Hemisphere and Canada, and lower stimulation activity in Middle East/Asia region and Canada.
Drilling and Evaluation
Drilling and Evaluation revenue in the third quarter of 2021 was $1.7 billion, an increase of $323 million, or 23% when compared to the third quarter of 2020, while operating income was $186 million, an increase of $81 million, or 77%. These results were primarily driven by increases in drilling-related services, wireline activity, project management activity, and testing services in the Western Hemisphere, higher drilling-related services across the Middle East/Asia region, the United Kingdom, and Nigeria, along with higher fluid services in Russia. Also, project management activity rose in the Middle East, and testing services and wireline activity increased in Europe/Africa/CIS. Partially offsetting the increases were decreases in drilling-related services in Norway, Saudi Arabia, and Asia, lower project management activity in India, lower wireline activity in Saudi Arabia, the United Kingdom, and Australia, and less drilling activity in the United Arab Emirates.
Geographic Regions
North America
North America revenue in the third quarter of 20202021 was $984 million,$1.6 billion, a 67% decrease64% increase compared to the third quarter of 2019.2020. This declineincrease was mainlyprimarily due to reducedincreased activity and pricingacross multiple product service lines in North America land primarily associated with stimulation activity,and the Gulf of Mexico, as well construction, artificial lift, wireline,as increased drilling services in Canada. Partially offsetting these increases were lower pressure pumping services and completion tool sales coupled within Canada, and lower stimulation activity in the Gulf of Mexico and Canada.Mexico.
Latin America
Latin America revenue in the third quarter of 20202021 was $380$624 million, a 38% decrease64% increase compared to the third quarter of 2019,2020, resulting from reducedincreased activity across mostmultiple product service lines in Argentina, Ecuador,Mexico, and Colombia, coupled with decreasedBrazil, additional fluid services and completion tool sales in Guyana, higher well construction activity, well intervention services, and wireline activity in Brazil.Colombia, and improved project management and well construction activity in Ecuador. Partially offsetting these increases were reduced completion tool sales in Trinidad.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the third quarter of 20202021 was $649$676 million, a 22% decrease4% increase compared to the third quarter of 2019,2020, resulting primarily from decreased well construction, stimulation activity, wireline, and well intervention services across the region, coupled with lowerincreased activity across multiple product service lines in EgyptWest Africa, Angola, and Nigeria, offset by increasedMozambique, additional fluid activity and pipeline services in Russia, improved well construction activity in the United Kingdom, and higher well intervention services across the region. Partially offsetting these increases were lower drilling-related services in Norway, decreases in multiple product service lines in Azerbaijan, and lower completion tool sales in the North Sea.United Kingdom, Algeria and Russia.
Middle East/Asia
Middle East/Asia revenue in the third quarter of 20202021 was $962$945 million, a 17%2% decrease compared to the third quarter of 2019,2020, largely resulting from a decline in completion tool sales across the region, lower activity across the majority ofmultiple product service lines in the United Arab Emirates, India, Saudi Arabia, Kuwait, and Indonesia, and declines in stimulation and wireline activity in Australia. Partially offsetting these declines were higher project management activity in Oman, Saudi Arabia, and Iraq, increased well construction activity in Australia, additional fluids activity in the Middle East, coupled with lower project management and drilling activityimproved pipeline services in Asia.China.
Other Operating Items
Impairments and other charges. During the three months ended September 30, 2021, we recognized $12 million of special charges. This includes $36 million of depreciation catch-up expense related to assets previously classified as held for sale related to our Pipeline and Process Services business, $15 million of severance costs, and $35 million of other items, partially offset by a $74 million gain related to the closing of the structured transaction for our North America real estate assets. During the three months ended September 30, 2020, we recognized $133 million of severance costs and other charges to further adjust our cost structure to market conditions. There were no impairments and other charges recorded in the third quarter of 2019. See Note 2 to the condensed consolidated financial statements for further discussion on thesethe third quarter of 20202021 charges.
Nonoperating Items
Effective tax rate. During the three months ended September 30, 2020, we recorded a total income tax provision of $18 million on a pre-tax loss of $1.0 million, resulting in an unusually high negative effective tax rate for the quarter. During the three months ended September 30, 2019, we recorded a total income tax provision of $76 million on pre-tax income of $372 million, resulting in an effective tax rate of 20.4%. See Note 7 to the condensed consolidated financial statements for further information.
HAL Q3 20202021 FORM 10-Q | 24
| | | | | |
| Part I. Item 2 | Results of Operations in 2020 Compared to 2019 (YTD) |
Nine Months Ended September 30, 2020 Compared with Nine Months Ended September 30, 2019
| | | | | | | | | | | | | | |
| Revenue: | Nine Months Ended
September 30 | | Favorable | Percentage |
| Millions of dollars | 2020 | 2019 | (Unfavorable) | Change |
| Completion and Production | $ | 6,029 | | $ | 10,973 | | $ | (4,944) | | (45) | % |
| Drilling and Evaluation | 5,179 | | 6,244 | | (1,065) | | (17) | |
| Total revenue | $ | 11,208 | | $ | 17,217 | | $ | (6,009) | | (35) | % |
| | | | |
| By geographic region: | | | | |
| North America | $ | 4,493 | | $ | 9,551 | | $ | (5,058) | | (53) | % |
| Latin America | 1,242 | | 1,766 | | (524) | | (30) | |
| Europe/Africa/CIS | 2,171 | | 2,402 | | (231) | | (10) | |
| Middle East/Asia | 3,302 | | 3,498 | | (196) | | (6) | |
| Total revenue | $ | 11,208 | | $ | 17,217 | | $ | (6,009) | | (35) | % |
| | | | | | | | | | | | | | |
| Operating income (loss): | Nine Months Ended
September 30 | | Favorable | Percentage |
| Millions of dollars | 2020 | 2019 | (Unfavorable) | Change |
| Completion and Production | $ | 713 | | $ | 1,284 | | $ | (571) | | (44) | % |
| Drilling and Evaluation | 452 | | 418 | | 34 | | 8 | |
| Total | 1,165 | | 1,702 | | (537) | | (32) | |
| Corporate and other | (152) | | (190) | | 38 | | 20 | |
| Impairments and other charges | (3,353) | | (308) | | (3,045) | | n/m |
| Total operating income (loss) | $ | (2,340) | | $ | 1,204 | | $ | (3,544) | | n/m |
| n/m = not meaningful | | | | |
Consolidated revenue was $11.2 billion in the first nine months of 2020, a decrease of $6.0 billion, or 35%, as compared to the first nine months of 2019. We reported an operating loss of $2.3 billion in the first nine months of 2020 compared to operating income of $1.2 billion during the first nine months of 2019. These declines were primarily driven by lower activity and pricing globally for stimulation services, well construction, and artificial lift; wireline activity in North America land, coupled with reduced well construction activity in Latin America. Operating results in the first nine months of 2020 were also impacted by $3.4 billion of impairments and other charges, while operating results in the first nine months of 2019 included $308 million of impairments and other charges. See Note 2 to the condensed consolidated financial statements for further discussion on these charges. Revenue from North America was 40% of consolidated revenue in the first nine months of 2020, compared to 55% of consolidated revenue in the first nine months of 2019.
Operating Segments
Completion and Production
Completion and Production revenue in the first nine months of 2020 was $6.0 billion, a decrease of $4.9 billion, or 45%, compared to the first nine months of 2019. Operating income in the first nine months of 2020 was $713 million, a decrease of $571 million, or 44%, compared to the first nine months of 2019. These results were primarily driven by a global decline in stimulation activity, primarily in North America land and Latin America, coupled with lower artificial lift activity and completion tool sales in North America land.
Drilling and Evaluation
Drilling and Evaluation revenue in the first nine months of 2020 was $5.2 billion, a decrease of $1.1 billion, or 17%, compared to the first nine months of 2019, primarily related to reduced drilling-related activity in North America, Latin America, and Middle East/Asia, coupled with lower wireline activity in North America, Latin America, and Europe/Africa/CIS, and lower project management activity in Middle East/Asia. Operating income in the first nine months of 2020 was $452 million, an increase of $34 million, or 8%, compared to the first nine months of 2019, primarily associated with favorable changes in the activity mix related to fluids, drilling, and wireline services in the Eastern Hemisphere.
HAL Q3 2020 FORM 10-Q | 2521
| | | | | |
| Part I. Item 2 | Results of Operations in 20202021 Compared to 20192020 (QTD) |
Nonoperating Items
Effective tax rate. During the three months ended September 30, 2021, we recorded a total income tax provision of $76 million on a pre-tax income of $316 million, resulting in an effective tax rate of 24% for the quarter. During the three months ended September 30, 2020, we recorded a total income tax provision of $18 million on a pre-tax loss of $1 million, resulting in an unusually high negative effective tax rate for the quarter.
HAL Q3 2021 FORM 10-Q | 22
| | | | | |
| Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (YTD) |
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
| | | | | | | | | | | | | | |
| Revenue: | Nine Months Ended
September 30 | Favorable | Percentage |
| Millions of dollars | 2021 | 2020 | (Unfavorable) | Change |
| Completion and Production | $ | 6,054 | | $ | 6,029 | | $ | 25 | | — | % |
| Drilling and Evaluation | 4,964 | | 5,179 | | (215) | | (4) | |
| Total revenue | $ | 11,018 | | $ | 11,208 | | $ | (190) | | (2) | % |
| | | | |
| By geographic region: | | | | |
| North America | $ | 4,588 | | $ | 4,493 | | $ | 95 | | 2 | % |
| Latin America | 1,693 | | 1,242 | | 451 | | 36 | |
| Europe/Africa/CIS | 1,989 | | 2,171 | | (182) | | (8) | |
| Middle East/Asia | 2,748 | | 3,302 | | (554) | | (17) | |
| Total revenue | $ | 11,018 | | $ | 11,208 | | $ | (190) | | (2) | % |
| | | | | | | | | | | | | | |
| Operating income (loss): | Nine Months Ended
September 30 | Favorable | Percentage |
| Millions of dollars | 2021 | 2020 | (Unfavorable) | Change |
| Completion and Production | $ | 891 | | $ | 713 | | $ | 178 | | 25 | % |
| Drilling and Evaluation | 532 | | 452 | | 80 | | 18 | |
| Total | 1,423 | | 1,165 | | 258 | | 22 | |
| Corporate and other | (161) | | (152) | | (9) | | (6) | |
| Impairments and other charges | (12) | | (3,353) | | 3,341 | | n/m |
| Total operating income (loss) | $ | 1,250 | | $ | (2,340) | | $ | 3,590 | | 153 | % |
| n/m = not meaningful | | | | |
Consolidated revenue was $11.0 billion in the first nine months of 2021, a decrease of $190 million, or 2%, as compared to the first nine months of 2020. We reported operating income of $1.3 billion in the first nine months of 2021 compared to an operating loss of $2.3 billion during the first nine months of 2020. The decrease in revenue was primarily driven by lower activity associated with completion tool sales globally, except in Latin America, drilling-related services, project management activity, wireline activity, and testing services in the Eastern Hemisphere, and pressure pumping services in Middle East/Asia. Partially offsetting the decreases were increases in stimulation and artificial lift activity in the Western Hemisphere, improved activity across multiple product service lines in Latin America, and higher pipeline services in Asia and the United Kingdom. Operating results in the first nine months of 2020 included $3.4 billion of impairments and other charges while the first nine months of 2021 benefited from higher commodity pricing driving increased activity, higher utilization, and operating leverage from 2020 structural cost reductions. Revenue from North America was 42% of consolidated revenue in the first nine months of 2021, compared to 40% of consolidated revenue in the first nine months of 2020.
Operating Segments
Completion and Production
Completion and Production revenue in the first nine months of 2021 was $6.1 billion, an increase of $25 million compared to the first nine months of 2020. This increase was primarily driven by a rise in stimulation and artificial lift activity in the Western Hemisphere, higher pipeline services in China and the United Kingdom, and well intervention services in Latin America. Partially offsetting these increases were decreased pressure pumping services in Middle East/Asia and lower completion tool sales globally. Operating income in the first nine months of 2021 was $891 million, an increase of $178 million, or 25%, compared to the first nine months of 2020, mainly driven by higher utilization for pressure pumping in North America land and Latin America, increased well intervention services in Latin America and Middle East/Asia, and improved artificial lift activity in North America land. Partially offsetting these increases to operating income were lower completion tool sales in the Eastern Hemisphere, the Gulf of Mexico, and Canada.
HAL Q3 2021 FORM 10-Q | 23
| | | | | |
| Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (YTD) |
Drilling and Evaluation
Drilling and Evaluation revenue in the first nine months of 2021 was $5.0 billion, a decrease of $215 million, or 4%, compared to the first nine months of 2020, primarily related to reduced drilling-related services in the Eastern Hemisphere, wireline activity in the Eastern Hemisphere and North America land, and decreased project management activity in Iraq, India, and Europe/Africa/CIS. Also, testing services were reduced in Saudi Arabia and software sales declined globally. Partially offsetting these decreases were increased fluid services in North America land and Latin America, improved drilling services in Canada and Brazil, and increased wireline activity in Argentina. Operating income in the first nine months of 2021 was $532 million, an increase of $80 million, or 18%, compared to the first nine months of 2020 based in part on improved margins related to project management activity in India and Saudi Arabia, as well as higher drilling-related services in the Western Hemisphere and wireline activity in Latin America. Offsetting these operating income improvements was a global reduction of software sales.
Geographic Regions
North America
North America revenue in the first nine months of 20202021 was $4.5$4.6 billion, a 53% decrease2% increase compared to the first nine months of 2019,2020, driven by lowerhigher activity and pricing across the region, primarily associated with stimulation activity well construction, artificialand drilling-related services. Artificial lift wireline,activity improved in North America land and project management activity increased in the Gulf of Mexico. These increases were partially offset by lower completion tool sales.sales across the region, along with reduced cementing and wireline activity.
Latin America
Latin America revenue in the first nine months of 20202021 was $1.2$1.7 billion, a 30% decrease36% increase compared to the first nine months of 2019,2020, resulting primarily from decreased well construction and stimulation activityan increase across the region, coupled with lower wireline and testingmultiple product service lines in Argentina, increased fluid services in Brazil Argentina,and the Caribbean, along with improved stimulation activity, completion tool sales, testing services, and project management activity in Mexico, additional drilling services in Brazil, and increased well intervention services in Brazil and Colombia. Partially offsetting these increases were lower completion tool sales in the Caribbean and lower software sales in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the first nine months of 20202021 was $2.2$2.0 billion, a 10%an 8% decrease from the first nine months of 2019,2020, driven by reduced activitya decrease across multiple product service lines in Ghana, Nigeria,Russia, the North Sea, Azerbaijan, and Egypt, coupled with lower pipeline services across the region. This decline wasNigeria. These declines were partially offset by increased well construction andan increase in completion tool sales in Norway and higher project managementincreased pipeline services in the the United Kingdom and well constructionRussia, testing services in Algeria, and a slight improvement in stimulation activity in Russia.across the region.
Middle East/Asia
Middle East/Asia revenue in the first nine months of 20202021 was $3.3$2.7 billion, a 6%17% decrease from the first nine months of 2019,2020, resulting primarily from decreased stimulationreduced activity well construction,across multiple product service lines in Saudi Arabia and well interventionUnited Arab Emirates, lower pressure pumping services, indrilling-related services, and completion tool sales across the Middle East, coupled with lowerregion, reduced project management activity across the region. This decline was partially offset by increased completion tool sales in the Middle EastIraq and Australia, along with improved cementingIndia, and fluidsdecreases in wireline activity in Indonesia.Malaysia. Partially offsetting these decreases were improved pipeline services in China and drilling services in Australia.
Other Operating Items
Impairments and other charges. During the nine months ended September 30, 2020,2021, we recognized $12 million of special items. This includes $36 million of depreciation catch-up expense related to assets previously classified as held for sale related to our Pipeline and Process Services business, $15 million of severance costs, and $35 million of other items, partially offset by a $74 million gain related to the closing of the structured transaction for our North America real estate assets. This compares to $3.4 billion of impairments and other charges in the nine months ended September 30, 2020 to further adjust our cost structure to current market conditions. These charges consisted primarily of asset impairments, mostly associated with pressure pumping equipment and real estate facilities, as well as inventory write-offs, severance costs, and other costs. This compares to $308 million of charges in the nine months ended September 30, 2019, primarily related to asset impairments and severance costs.charges. See Note 2 to the condensed consolidated financial statements for further discussion on thesethe third quarter of 2021 charges.
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| | | | | |
| Part I. Item 2 | Results of Operations in 2021 Compared to 2020 (YTD) |
Nonoperating Items
Loss on early extinguishment of debtEffective tax rate. During the nine months ended September 30, 2020,2021, we recorded a $168total income tax provision of $193 million loss on the early extinguishmenta pre-tax income of debt, which included a tender premium, unamortized discounts and costs on the retired notes, and tender fees. See Note 6 to the condensed consolidated financial statements for further information.
Effective$834 million, resulting in an effective tax rate of 23.2%. During the nine months ended September 30, 2020, we recorded a total income tax benefit of $265 million on a pre-tax loss of $3.0 billion, resulting in an effective tax rate of 8.9%. DuringThe unusual rate for the nine months ended September 30, 2019, we recorded2020 was largely the result of recording a total incomevaluation allowance against certain deferred tax provisionassets in the first quarter of $190 million on pre-tax income of $715 million, resulting in an effective tax rate of 26.6%. See Note 72020, primarily due to the condensed consolidated financial statements for further information.
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| | | | | | | | |
| | 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 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 20192020 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2019.2020.
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 September 30, 20202021 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 September 30, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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| | | | | | | | |
| | 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 98 to the condensed consolidated financial statements.
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| | | | | | | | |
| | Part II. Item 1(a) | Risk Factors |
Item 1(a). Risk Factors
The statements in this section describe the known material risks to our business and should be considered carefully. The risk factor below updates ourAs of September 30, 2021, there have been no material changes in risk factors previously discusseddisclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The COVID-19 pandemic and related economic repercussions have had a material adverse effect on our business, liquidity, consolidated results of operations, and consolidated financial condition, which effect could worsen.
The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. These events have directly affected our business and have exacerbated the potential negative impact from many of the risks described in our Form 10-K for the year ended December 31, 2019, including those relating to our customers’ capital spending and trends in oil and natural gas prices. In addition, we are facing logistical challenges including border closures, travel restrictions, and an inability to commute to certain facilities and job sites, as we provide services and products to our customers. We are also experiencing inefficiencies surrounding stay-at-home orders andremote work arrangements. These logistical challenges and inefficiencies could worsen if the pandemic worsens or persists.
In the midst of the ongoing COVID-19 pandemic, in the first quarter of 2020 OPEC+ was initially unable to reach an agreement to continue to impose limits on the production of crude oil. Oil demand has significantly deteriorated as a result of the virus and corresponding preventative measures taken around the world to mitigate the spread of the virus. The convergence of these events created the unprecedented dual impact of a global oil demand decline coupled with the risk of a substantial increase in supply. While OPEC+ agreed in April to cut production, there is no assurance that the agreement will continue or be observed by its parties, and downward pressure on commodity prices could continue for the foreseeable future.
Given the nature and significance of the events described above, we are not able to enumerate all potential risks to our business; however, we believe that in addition to the impacts described above, other current and potential impacts of these recent events include, but are not limited to:
•disruption to our supply chain for raw materials essential to our business, including restrictions on importing and exporting products;
•notices from customers, suppliers, and other third parties arguing that their non-performance under our contracts with them is permitted as a result of force majeure or other reasons;
•liquidity challenges, including impacts related to delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies;
•a credit rating downgrade of our corporate debt and potentially higher borrowing costs in the future;
•a need to preserve liquidity, which could result in a further reduction or suspension of our quarterly dividend or a delay or change in our capital investment plan;
•cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity;
•litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements;
•a further reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;
•additional costs associated with rationalization of our portfolio of real estate facilities, including possible exit of leases and facility closures to align with expected activity and workforce capacity;
•additional asset impairments, including an impairment of the carrying value of our goodwill, along with other accounting charges;
•infections and quarantining of our employees and the personnel of our customers, suppliers, and other third parties in areas in which we operate;
•changes in the regulation of the production of hydrocarbons, such as the imposition of limitations on the production of oil and gas by states or other jurisdictions, that may result in additional limits on demand for our products and services;
•actions undertaken by national, regional and local governments and health officials to contain COVID-19 or treat its effects; and
•a structural shift in the global economy and its demand for oil and natural gas as a result of changes in the way people work, travel and interact, or in connection with a global recession or depression.
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| | | | | | | | |
| | Part II. Item 1(a) | Risk Factors |
Given the dynamic nature of these events, we cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist or their severity, the full extent of the impact they will have on our business, financial condition, results of operations or cash flows or the pace or extent of any subsequent recovery.
The events described above have had a significant adverse impact on the oil and gas industry and a material adverse effect on our business, liquidity, consolidated results of operations, and consolidated financial condition, all of which could worsen. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview.”
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| | | | | |
| 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 September 30, 2020.2021.
| | Period | 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) | 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) |
| July 1 - 31 | July 1 - 31 | 98,030 | | $11.63 | — | $5,100,008,081 | July 1 - 31 | 263,935 | | $21.71 | — | $5,100,008,081 |
| August 1 - 31 | August 1 - 31 | 114,152 | | $16.27 | — | $5,100,008,081 | August 1 - 31 | 98,979 | | $20.34 | — | $5,100,008,081 |
| September 1 - 30 | September 1 - 30 | 28,491 | | $15.33 | — | $5,100,008,081 | September 1 - 30 | 32,529 | | $20.54 | — | $5,100,008,081 |
| Total | Total | 240,673 | | $14.27 | — | | Total | 395,443 | | $21.27 | — | |
| | (a) | | (a) | All of the 395,443 shares purchased during the three-month period ended September 30, 2021 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 our publicly announced program to repurchase common stock. |
| (b) | | (b) | Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.1 billion remained authorized for repurchases as of September 30, 2021. From the inception of this program in February of 2006 through September 30, 2021, we repurchased approximately 224 million shares of our common stock for a total cost of approximately $9.0 billion. We did not repurchase any shares under this program during the three months ended September 30, 2021. |
(a) All of the 240,673 shares purchased during the three-month period ended September 30, 2020 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 purchase common stock.
(b) Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.1 billion remained authorized for repurchases as of September 30, 2020. From the inception of this program in February 2006 through September 30, 2020, we repurchased approximately 224 million shares of our common stock for a total cost of approximately $9.0 billion.
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| | | | | | | | |
| | Part II. Item 3 | Defaults Upon Senior Securities |
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 federal 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
None.
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| | | | | | | | |
| | Part II. Item 6 | Exhibits |
Item 6. Exhibits
| | | | | | | | |
| † | 10.1 | |
| | |
| † | 10.2 | |
| | |
| † | 10.3 | |
| | |
| * | 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. |
| † | Management contracts or compensatory plans or arrangements. |
| | |
| | |
| | |
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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/ Lance Loeffler | /s/ Charles E. Geer, Jr. |
| Lance Loeffler | Charles E. Geer, Jr. |
| Executive Vice President and | Senior Vice President and |
| Chief Financial Officer | Chief Accounting Officer |
Date: October 23, 202022, 2021
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