Halliburton Announces Second Quarter Results
HOUSTON, July 21, 2005 /PRNewswire-FirstCall via COMTEX/ -- Halliburton (NYSE: HAL) announced today that second quarter of 2005 income from continuing operations was $391 million or $0.76 per diluted share. This compares to a loss from continuing operations of $58 million or $0.13 per diluted share in the second quarter of 2004, which included a $200 million after-tax loss from the Barracuda-Caratinga offshore engineering, procurement, installation, and commissioning (EPIC) project.
Consolidated revenue in the second quarter of 2005 was $5.2 billion, up 4% from the second quarter of 2004. This increase was largely attributable to higher activity in the Energy Services Group (ESG), approximately half of which was derived from international growth. This was partially offset by lower revenue in KBR on government services projects in the Middle East as well as a reduction in work on offshore EPIC and other oil and gas projects nearing completion in the Energy and Chemicals segment.
Consolidated operating income was $607 million in the second quarter of 2005 compared to a loss of $26 million in the second quarter of 2004. ESG experienced strong performance reflecting increased customer exploration and production spending, higher utilization of assets, and increased pricing. KBR received favorable award fees from its government services work in the Middle East and experienced improved project performance in the Energy and Chemicals segment. The second quarter of 2004 operating loss included a $310 million pretax charge on the Barracuda-Caratinga project.
"We are extremely pleased with our second quarter performance, both for ESG and KBR," said Dave Lesar, chairman, president, and chief executive officer of Halliburton. "ESG posted a 44% incremental margin over the second quarter of 2004 on strong international growth. KBR continues to improve earnings, build backlog, and make progress in resolving government contract issues."
2005 Second Quarter Segment Results
Energy Services Group
ESG posted second quarter of 2005 revenue of $2.5 billion, a $567 million or 30% increase over the second quarter of 2004, and operating income of $522 million, up $251 million or 93% from the same period in the prior year.
Production Optimization operating income for the second quarter of 2005 was $245 million, an increase of $124 million or 102% over the second quarter of 2004. Production enhancement services operating income increased 110%, primarily on increased demand for well stimulation services for natural gas applications, increased utilization of crews and assets, and improved pricing in the United States. West Africa and the North Sea also posted strong results. Completion tools operating income increased 49%, and operating margins increased by over four percentage points due to a change in mix to higher margin product sales and manufacturing efficiencies.
Fluid Systems operating income for the second quarter of 2005 was $135 million, a $58 million or 75% increase over the second quarter of 2004. Cementing services operating income increased 74% due to higher global drilling activity and improved pricing and asset utilization in the United States. Baroid Fluid Services operating income increased 78% on improved performance in Africa, increased deepwater work in the Gulf of Mexico, and strong growth in higher margin completion fluids and surface solutions product lines.
Drilling and Formation Evaluation operating income was $126 million, a $67 million or 114% increase over the prior year second quarter. All regions showed earnings growth, with international operations driving 76% of the increase. Sperry Drilling Services operating income increased 116%, benefiting from improved operating results in West Africa and increased activity in the United States and the North Sea. Logging services operating income increased 83% due to improvement in the United States and West Africa and strong growth in the Middle East. Security DBS drill bits operating income tripled reflecting efficiencies related to facility consolidations, higher activity, and the continued strength of fixed cutter bit volumes.
Digital and Consulting Solutions second quarter of 2005 operating income was $16 million, a $2 million or 14% increase as compared to the prior year period. Landmark's operating income increased by $14 million, primarily driven by higher revenue across all regions. The increase was offset by a $15 million charge for two integrated solutions projects in southern Mexico.
KBR
KBR revenue for the second quarter of 2005 was $2.7 billion, a 12% decrease compared to the second quarter of 2004. Operating income for the second quarter of 2005 was $122 million compared to an operating loss of $277 million in the second quarter of 2004.
Government and Infrastructure (G&I) operating income for the second quarter of 2005 was $73 million compared to $19 million in the second quarter of 2004, a 284% increase. The increase primarily resulted from positive developments related to LogCAP award fees. G&I continues to receive favorable job performance ratings for its work supporting the troops in Iraq. As a result, G&I recognized $29 million of income for recent awards on completed work, and increased the award fee accrual rate for its ongoing work under the LogCAP contract from 50% to 72% during the quarter. G&I also realized improved performance at the DML shipyard, partially offset by the completion of the RIO contract in Iraq.
Energy and Chemicals (E&C) operating income totaled $49 million in the second quarter of 2005 compared to a $296 million loss in the second quarter of 2004. Contributing to this increase was strong performance in engineering and project management projects in Angola and the Caspian and income from recently awarded liquefied natural gas (LNG) and gas-to-liquids (GTL) projects. Included in the second quarter of 2004 was a pretax loss of $310 million on the Barracuda-Caratinga project in Brazil.
Halliburton's Iraq-related work contributed approximately $1.4 billion in revenue in the second quarter of 2005 and $48 million of operating income, or a 3.4% margin.
Technology and Significant Achievements
Halliburton had a number of advances in technology and new contract awards.
Energy Services Group new technologies and contract awards:
* ESG won four Hart's E&P meritorious engineering achievement awards
for 2005. William Pike, Hart's editor-in-chief, presented the awards
at the Offshore Technology Conference in Houston in May. The four
winning Halliburton technologies are: the Well Seismic Fusion(TM)
technology for exploration; the FasTest(TM) system for subsurface
characterization and analysis; BOREMAX(TM) high-performance water-
based drilling fluid; and DeepReach(SM) coiled tubing intervention
service.
* Halliburton and Intel have announced a collaborative program to
identify and promote innovative, industry-leading solutions developed
by Halliburton that benefit from the high performance availability
and scalability of Intel's advanced computing technology. From
wireless fracturing spreads and electronic field tickets to
sophisticated knowledge management solutions and real-time
operations, Intel is helping Halliburton to Unleash the Energy(TM) in
the oil and gas industry today.
* Halliburton's Production Optimization segment developed the
SandTrap(SM) service using a formation stabilization system to assist
operators with the economical recovery of bypassed hydrocarbons in
friable or weakly consolidated reservoir sands. To date,
Halliburton's SandTrap(SM) service has been successfully deployed in
reservoirs prone to sand production problems in the Gulf of Mexico,
California, Indonesia, and Argentina.
* Halliburton's Production Optimization segment has successfully
installed the first PoroFlex(R) expandable completion system on the
Arabian Peninsula for Saudi Aramco. The sand control technique of
expanding screen in an open hole provides a solution for slim-hole
side track re-completions that maximize the reservoir exposure while
maintaining a sufficiently large internal diameter to allow the
desired production rates. In addition, maintaining full bore access
facilitates remedial operation during the life of the well.
* Halliburton's Production Optimization segment was awarded a contract
to provide its EZ-Gauge(TM) technology on projects in Vietnam for
Japan Vietnam Petroleum Company Limited (JVPC), a joint venture
company of Nippon Oil Exploration Limited (a subsidiary of Nippon Oil
Group), ConocoPhillips, and PetroVietnam Exploration and Production
Company (a subsidiary of PetroVietnam). JVPC selected the EZ-Gauge
system because it provides a cost-effective, accurate pressure data
collection system that is free of downhole electronics. Reliability
and longevity of the system is significantly greater than other
monitoring technologies.
KBR new contract awards:
* KBR was selected to continue its services as the premier logistics
support provider to United States forces deployed in the Balkans
region and to provide similar contingency operations support through
the United States Army Europe's (USAREUR) area of responsibility.
The United States Army Corps of Engineers' Transatlantic Programs
Center announced that it awarded the USAREUR Support Contract to KBR
for a period of up to five years. The competitively awarded
indefinite delivery/indefinite quantity contract will replace the
Balkans Support Contract that was awarded to KBR in 1999. The
contract has a two-month phase-in period, a one-year base performance
period, and four additional options that can be awarded at the
government's discretion. The Army may order up to $1.25 billion in
services if required, which is the contract's maximum capacity for
the five-year period.
* KBR and its joint venture team, including JGC Corporation of Japan
and Technip, were awarded a Front End Engineering and Design (FEED)
contract for the Angola LNG Project, to be constructed near Soyo in
Northern Angola, approximately 300 kilometers north of Luanda. The
five million tonnes per annum LNG facility will be operated by a new
company to be formed by Sonangol (the Angola national oil company),
Chevron, BP, ExxonMobil, and Total.
* KBR and its joint venture partners, including JGC Corporation, Hatch
and Clough, have been awarded a FEED contract and option for an
Engineering, Procurement, and Construction Management (EPCM) contract
for the Greater Gorgon Downstream LNG Project. The downstream
project will include two LNG processing trains, each with a capacity
of five million tonnes per annum, to be located on Barrow Island,
Western Australia. The FEED contract is expected to be followed by
the EPCM contract when the project receives final investment decision
approval, which is expected in mid-2006.
* KBR has been awarded a contract for a Licensor Engineering Package
for conversion of BP West Coast Products, LLC's Carson, California
refinery's MTBE unit to the production of iso-octene. Iso-octene is
subsequently converted to iso-octane gasoline blend stock.
NExOCTANE(TM) technology was developed by Fortum Oil Oy in Finland
and is available to United States refiners under direct license from
KBR.
Halliburton, founded in 1919, is one of the world's largest providers of products and services to the petroleum and energy industries. The company serves its customers with a broad range of products and services through its Energy Services Group and KBR. The company's World Wide Web site can be accessed at www.halliburton.com .
NOTE: The statements in this press release that are not historical statements, including statements regarding future financial performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: legal risks, including the risks of audits and investigations of the company by domestic and foreign government agencies and legislative bodies and potential adverse proceedings and findings by such agencies, the risks of judgments against the company and its subsidiaries in litigation and proceedings, including contract disputes, intellectual property rights, environmental matters, legislation, changes in government regulations, and regulatory requirements, particularly those related to radioactive sources, explosives and chemicals; risks related to income taxes; political risks, including the risks of unsettled political conditions, war and the effects of terrorism, foreign operations and foreign exchange rates and controls; weather-related risks; customer risks, including the risks of changes in capital spending and claims negotiations; industry risks, including the risks of changes that affect the demand for or price of oil and/or gas, structural changes in the industries in which the company operates, risks of fixed-fee projects, and risks of complex business arrangements; systems risks, including the risks of successful development and installation of financial systems; and personnel and merger/reorganization/disposition risks, including the risks of increased competition for employees, successful integration of acquired businesses, effective restructuring efforts, and successful completion of planned dispositions. Halliburton's Form 10-K for the year ended December 31, 2004, Form 10-Q for the period ended March 31, 2005, recent Current Reports on Forms 8-K, and other Securities and Exchange Commission filings discuss some of the important risk factors identified that may affect the business, results of operations and financial condition. Halliburton undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Millions of dollars and shares except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
June 30 March 31
2005 2004 2005
Revenue:
Production Optimization $1,046 $797 $900
Fluid Systems 699 554 631
Drilling and Formation Evaluation 566 423 489
Digital and Consulting Solutions 160 130 164
Total Energy Services Group 2,471 1,904 2,184
Government and Infrastructure 2,039 2,237 2,091
Energy and Chemicals 653 815 663
Total KBR 2,692 3,052 2,754
Total revenue $5,163 $4,956 $4,938
Operating income (loss):
Production Optimization $245 $121 $291
Fluid Systems 135 77 113
Drilling and Formation Evaluation 126 59 80
Digital and Consulting Solutions 16 14 29
Total Energy Services Group 522 271 513
Government and Infrastructure 73 19 53
Energy and Chemicals 49 (296) 52
Total KBR 122 (277) 105
General corporate (37) (20) (32)
Total operating income (loss) 607 (26) 586
Interest expense (51) (53) (52)
Interest income 9 7 12
Foreign currency, net (7) (7) ---
Other, net (3) (1) (2)
Income (loss) from continuing
operations before income taxes
and minority interest 555 (80) 544
(Provision) benefit for income
taxes (154) 29 (169)
Minority interest in net income
of subsidiaries (10) (7) (8)
Income (loss) from continuing
operations 391 (58) 367
Income (loss) from discontinued
operations, net 1 (609) (2)
Net income (loss) $392 $(667) $365
Basic income (loss) per share:
Income (loss) from continuing
operations $0.78 $(0.13) $0.73
Income (loss) from discontinued
operations, net --- (1.39) ---
Net income (loss) $0.78 $(1.52) $0.73
Diluted income (loss) per share:
Income (loss) from continuing
operations $0.76 $(0.13) $0.72
Income (loss) from discontinued
operations, net --- (1.39) ---
Net income (loss) $0.76 $(1.52) $0.72
Basic weighted average common
shares outstanding 503 437 501
Diluted weighted average common
shares outstanding 513 437 510
See Footnote Table 1 for a list of significant items included in operating
income.
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Millions of dollars and shares except per share data)
(Unaudited)
Six Months Ended
June 30
2005 2004
Revenue:
Production Optimization $1,946 $1,505
Fluid Systems 1,330 1,089
Drilling and Formation Evaluation 1,055 867
Digital and Consulting Solutions 324 259
Total Energy Services Group 4,655 3,720
Government and Infrastructure 4,130 5,105
Energy and Chemicals 1,316 1,650
Total KBR 5,446 6,755
Total revenue $10,101 $10,475
Operating income (loss):
Production Optimization $536 $203
Fluid Systems 248 137
Drilling and Formation Evaluation 206 102
Digital and Consulting Solutions 45 43
Total Energy Services Group 1,035 485
Government and Infrastructure 126 81
Energy and Chemicals 101 (373)
Total KBR 227 (292)
General corporate (69) (44)
Total operating income 1,193 149
Interest expense (103) (109)
Interest income 21 17
Foreign currency, net (7) (10)
Other, net (5) 4
Income from continuing operations before
income taxes and minority interest 1,099 51
Provision for income taxes (323) (20)
Minority interest in net income of subsidiaries (18) (13)
Income from continuing operations 758 18
Loss from discontinued operations, net (1) (750)
Net income (loss) $757 $(732)
Basic income (loss) per share:
Income from continuing operations $1.51 $0.04
Loss from discontinued operations, net --- (1.71)
Net income (loss) $1.51 $(1.67)
Diluted income (loss) per share:
Income from continuing operations $1.48 $0.04
Loss from discontinued operations, net --- (1.71)
Net income (loss) $1.48 $(1.67)
Basic weighted average common shares outstanding 502 437
Diluted weighted average common shares outstanding 512 440
See Footnote Table 1 for a list of significant items included in operating
income.
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Millions of dollars)
(Unaudited)
June 30 March 31 December 31
2005 2005 2004
Assets
Current assets:
Cash and marketable securities $1,575 $1,812 $2,808
Receivables, net 4,280 4,778 4,685
Inventories, net 931 880 791
Insurance for asbestos- and
silica-related liabilities 91 96 1,066
Other current assets 1,090 642 680
Total current assets 7,967 8,208 10,030
Property, plant, and equipment, net 2,550 2,556 2,553
Insurance for asbestos- and
silica-related liabilities 301 297 350
Other assets 2,398 2,745 2,931
Total assets $13,216 $13,806 $15,864
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,871 $2,357 $2,339
Current maturities of
long-term debt 374 862 347
Asbestos- and silica-related
liabilities --- --- 2,408
Other current liabilities 1,927 1,960 2,038
Total current liabilities 4,172 5,179 7,132
Long-term debt 3,103 3,109 3,593
Asbestos- and silica-related
liabilities --- --- 37
Other liabilities 1,133 1,066 1,062
Total liabilities 8,408 9,354 11,824
Minority interest in consolidated
subsidiaries 113 114 108
Shareholders' equity 4,695 4,338 3,932
Total liabilities and
shareholders' equity $13,216 $13,806 $15,864
Note - Certain prior period amounts have been reclassified to be consistent with the current presentation.
HALLIBURTON COMPANY
Selected Cash Flow Information
(Millions of dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
Capital expenditures:
Energy Services Group $129 $131 $260 $234
KBR 18 23 29 50
Total capital expenditures $147 $154 $289 $284
Depreciation, depletion,
and amortization:
Energy Services Group $112 $111 $222 $230
KBR 15 13 30 26
Total depreciation,
depletion, and
amortization $127 $124 $252 $256
HALLIBURTON COMPANY
Revenue and Operating Income Comparison
By Geographic Region - Energy Services Group Only
(Millions of dollars)
(Unaudited)
Three Months Ended Six Months Ended
2005 March 31 June 30 June 30
Revenue:
North America $1,059 $1,137 $2,196
Latin America 314 333 647
Europe/Africa/CIS 463 565 1,028
Middle East/Asia 348 436 784
Total revenue $2,184 $2,471 $4,655
Operating Income:
North America $353 $289 $642
Latin America 46 39 85
Europe/Africa/CIS 62 105 167
Middle East/Asia 52 89 141
Total operating income $513 $522 $1,035
Twelve
Months
Three Months Ended Ended
2004 March 31 June 30 Sept. 30 Dec. 31 Dec. 31
Revenue:
North America $814 $846 $969 $980 $3,609
Latin America 229 257 295 301 1,082
Europe/Africa/CIS 433 464 510 517 1,924
Middle East/Asia 340 337 334 372 1,383
Total revenue $1,816 $1,904 $2,108 $2,170 $7,998
Operating income:
North America $118 $152 $228 $224 $722
Latin America 30 36 52 12 130
Europe/Africa/CIS 27 35 88 64 214
Middle East/Asia 39 48 46 67 200
Total operating
income $214 $271 $414 $367 $1,266
2003
Revenue:
North America $745 $762 $791 $787 $3,085
Latin America 182 226 244 255 907
Europe/Africa/CIS 395 467 415 411 1,688
Middle East/Asia 289 325 355 346 1,315
Total revenue $1,611 $1,780 $1,805 $1,799 $6,995
Operating income:
North America $84 $91 $31 $100 $306
Latin America 23 43 51 48 165
Europe/Africa/CIS 29 54 30 39 152
Middle East/Asia 44 47 58 54 203
Total operating
income $180 $235 $170 $241 $826
Note - Region results for Commonwealth of Independent States (CIS) have been reclassified from Middle East/Asia into Europe/Africa/CIS. All prior period amounts have been restated.
See Footnote Table 2 for a list of significant items included in operating income for the three months ended June 30, 2005 and 2004 and March 31, 2005, and for the six months ended June 30, 2005 and 2004.
HALLIBURTON COMPANY
Backlog Information
(Millions of dollars)
(Unaudited)
June 30 March 31 December 31
2005 2005 2004
Firm orders:
Government & Infrastructure $3,556 $4,224 $3,968
Energy & Chemicals 6,182 (A) 4,653 3,643
Energy Services Group segments 179 65 64
Total $9,917 $8,942 $7,675
Government orders firm but not
yet funded, letters of intent,
and contracts awarded but
not signed:
Government & Infrastructure $4,842 (B) $554 $816
Total backlog $14,759 $9,496 $8,491
(A) Backlog related to gas monetization projects, which include
liquefied natural gas and gas-to-liquids projects, amounted to
$3.0 billion of the $6.2 billion of Energy and Chemicals backlog as
of June 30, 2005.
(B) Increase primarily relates to Task Order No. 89 under the LogCAP
contract.
HALLIBURTON COMPANY
Iraq-Related Award Fee Information on LogCAP Contract
(Millions of dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
Award fee adjustment (A) $29 $51
Change in estimated accrual
rate of award fees (B) $10 $10
(A) The amounts initially accrued for award fees are adjusted to actual
amounts earned once the award fees have been granted and the task
orders underlying the work are definitized. The actual amounts
granted were $27 million in the first quarter of 2005 and
$72 million in the second quarter of 2005. The six months ended
June 30, 2005 includes $10 million of income related to the
settlement of dining facilities matters. Through March 31, 2005,
award fees not yet granted were accrued at 50% of the maximum award
fee.
(B) Effective April 1, 2005, LogCAP award fees not yet granted are
accrued at 72% of the maximum award fee.
FOOTNOTE TABLE 1
HALLIBURTON COMPANY
Items included in Operating Income by Operating Segment
(Millions of dollars except per share data)
(Unaudited)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004 March 31, 2005
After After After
Operating Tax Operating Tax Operating Tax
Income per Share Income per Share Income per Share
Production
Optimization:
Subsea 7, Inc.
gain on
sale (A) $--- $--- $--- $--- $110 $0.14
Energy and
Chemicals:
Barracuda-
Caratinga
project loss --- --- (310) (0.46) --- ---
(A) The three months ended June 30, 2004 included a $2 million equity
loss contributed from Subsea 7, Inc.
Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
Operating After Tax Operating After Tax
Income per Share Income per Share
Production Optimization:
Subsea 7, Inc. gain
on sale (B) $110 $0.15 $--- $---
Digital and Consulting
Solutions:
Anglo-Dutch lawsuit --- --- 13 0.02
Energy and Chemicals:
Barracuda-Caratinga
project loss --- --- (407) (0.60)
(B) The six months ended June 30, 2004 included a $19 million equity
loss contributed from Subsea 7, Inc.
FOOTNOTE TABLE 2
HALLIBURTON COMPANY
Items included in Operating Income
By Geographic Region - Energy Services Group Only
(Millions of dollars except per share data)
(Unaudited)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004 March 31, 2005
After After After
Operating Tax Operating Tax Operating Tax
Income per Share Income per Share Income per Share
North America:
Subsea 7, Inc.
gain on sale $--- $--- $--- $--- $107 $0.14
Europe/Africa/CIS:
Subsea 7, Inc.
gain on sale --- --- --- --- 3 ---
Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
Operating After Tax Operating After Tax
Income per Share Income per Share
North America:
Subsea 7, Inc.
gain on sale $107 $0.15 $--- $---
Anglo-Dutch lawsuit --- --- 13 0.02
Europe/Africa/CIS:
Subsea 7, Inc. gain
on sale 3 --- --- ---
FOOTNOTE TABLE 3
HALLIBURTON COMPANY
Reconciliation of As Reported Segment Results to Adjusted Segment Results
Energy Services Group Only
(Millions of dollars)
(Unaudited)
Drilling Digital Total
and and Energy
Production Fluid Formation Consulting Services
Optimization Systems Evaluation Solutions Group
Three Months Ended
June 30, 2005
As reported
operating
income (A) $245 $135 $126 $16 $522
As reported
operating
margin (B) 23.4% 19.3% 22.3% 10.0% 21.1%
Three Months Ended
March 31, 2005
Revenue $900 $631 $489 $164 $2,184
As reported
operating
income 291 113 80 29 513
Subsea 7, Inc.
gain (C) (110) --- --- --- (110)
Adjusted
operating
income $181 $113 $80 $29 $403
As reported
operating
margin (B) 32.3% 17.9% 16.4% 17.7% 23.5%
Adjusted
operating
margin (B) 20.1% 17.9% 16.4% 17.7% 18.5%
(A) No reconciling items were noted for this period.
(B) As reported operating margin is calculated as: "As reported
operating income" divided by "Revenue." Adjusted operating margin
is calculated as: "Adjusted operating income" divided by "Revenue."
(C) The Company is reporting strong operating income from the Energy
Services Group, particularly the Production Optimization segment.
Management believes it is important to point out to investors that a
portion of operating income and operating margin is attributable to
the gain on the sale of the equity interest in the Subsea 7, Inc.
joint venture in the first quarter of 2005, because investors have
indicated to management their desire to understand the current
drivers and future trends of the operating margins. The adjustment
removes the effect of the gain on the sale of the 50% interest in
Subsea 7, Inc.
SOURCE Halliburton
Evelyn Angelle, Vice President, Investor Relations, +1-713-759-2688, or Cathy Gist-Mann, Director, Communications, +1-713-759-2605, both of Halliburton
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