UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number 001-03492
(a Delaware corporation)
75-2677995
3000 North Sam Houston Parkway East
Houston, Texas 77032
(Address of Principal Executive Offices)
Telephone Number – Area Code (281) 871-2699
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.
Yes | [X] | No | [ ] |
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).
Yes | [X] | No | [ ] |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
[X] | Accelerated Filer | [ ] | ||
Non-accelerated Filer | [ ] | 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.
Yes | [ ] | No | [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | [ ] | No | [X] |
As of April 19, 2019, there were 873,978,485 shares of Halliburton Company common stock, $2.50 par value per share, outstanding.
HALLIBURTON COMPANY
Index
Page No. | ||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31 | ||||||
Millions of dollars and shares except per share data | 2019 | 2018 | ||||
Revenue: | ||||||
Services | $ | $ | ||||
Product sales | ||||||
Total revenue | ||||||
Operating costs and expenses: | ||||||
Cost of services | ||||||
Cost of sales | ||||||
Impairments and other charges | ||||||
General and administrative | ||||||
Total operating costs and expenses | ||||||
Operating income | ||||||
Interest expense, net of interest income of $8 and $10 | ( | ) | ( | ) | ||
Other, net | ( | ) | ( | ) | ||
Income from continuing operations before income taxes | ||||||
Income tax provision | ( | ) | ( | ) | ||
Net income | $ | $ | ||||
Net income attributable to noncontrolling interest | ( | ) | ||||
Net income attributable to company | $ | $ | ||||
Basic and diluted net income per share | $ | $ | ||||
Basic weighted average common shares outstanding | ||||||
Diluted weighted average common shares outstanding | ||||||
See notes to condensed consolidated financial statements. | ||||||
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HALLIBURTON COMPANY
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March 31 | ||||||
Millions of dollars | 2019 | 2018 | ||||
Net income | $ | $ | ||||
Other comprehensive income (loss), net of income taxes | ( | ) | ||||
Comprehensive income | $ | $ | ||||
Comprehensive income attributable to noncontrolling interest | ( | ) | ||||
Comprehensive income attributable to company shareholders | $ | $ | ||||
See notes to condensed consolidated financial statements. | ||||||
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HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Unaudited)
Millions of dollars and shares except per share data | March 31, 2019 | December 31, 2018 | ||||
Assets | ||||||
Current assets: | ||||||
Cash and equivalents | $ | $ | ||||
Receivables (net of allowances for bad debts of $746 and $738) | ||||||
Inventories | ||||||
Other current assets | ||||||
Total current assets | ||||||
Property, plant and equipment (net of accumulated depreciation of $13,311 and $13,182) | ||||||
Goodwill | ||||||
Deferred income taxes | ||||||
Operating lease right-of-use assets | ||||||
Other assets | ||||||
Total assets | $ | $ | ||||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | $ | ||||
Accrued employee compensation and benefits | ||||||
Current portion of operating lease liabilities | ||||||
Other current liabilities | ||||||
Total current liabilities | ||||||
Long-term debt | ||||||
Operating lease liabilities | ||||||
Employee compensation and benefits | ||||||
Other liabilities | ||||||
Total liabilities | ||||||
Shareholders’ equity: | ||||||
Common shares, par value $2.50 per share (authorized 2,000 shares, issued 1,068 and 1,069 shares) | ||||||
Paid-in capital in excess of par value | ||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||
Retained earnings | ||||||
Treasury stock, at cost (196 and 198 shares) | ( | ) | ( | ) | ||
Company shareholders’ equity | ||||||
Noncontrolling interest in consolidated subsidiaries | ||||||
Total shareholders’ equity | ||||||
Total liabilities and shareholders’ equity | $ | $ | ||||
See notes to condensed consolidated financial statements. | ||||||
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HALLIBURTON COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31 | ||||||
Millions of dollars | 2019 | 2018 | ||||
Cash flows from operating activities: | ||||||
Net income | $ | $ | ||||
Adjustments to reconcile net income to cash flows from operating activities: | ||||||
Depreciation, depletion and amortization | ||||||
Impairments and other charges | ||||||
Changes in assets and liabilities: | ||||||
Receivables | ( | ) | ( | ) | ||
Inventories | ( | ) | ( | ) | ||
Accounts payable | ||||||
Other | ( | ) | ( | ) | ||
Total cash flows provided by (used in) operating activities | ( | ) | ||||
Cash flows from investing activities: | ||||||
Capital expenditures | ( | ) | ( | ) | ||
Proceeds from sales of property, plant and equipment | ||||||
Other investing activities | ( | ) | ||||
Total cash flows used in investing activities | ( | ) | ( | ) | ||
Cash flows from financing activities: | ||||||
Dividends to shareholders | ( | ) | ( | ) | ||
Other financing activities | ( | ) | ||||
Total cash flows used in financing activities | ( | ) | ( | ) | ||
Effect of exchange rate changes on cash | ( | ) | ( | ) | ||
Decrease in cash and equivalents | ( | ) | ( | ) | ||
Cash and equivalents at beginning of period | ||||||
Cash and equivalents at end of period | $ | $ | ||||
Supplemental disclosure of cash flow information: | ||||||
Cash payments during the period for: | ||||||
Interest | $ | $ | ||||
Income taxes | $ | $ | ||||
See notes to condensed consolidated financial statements. | ||||||
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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 2018 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 March 31, 2019 and the results of our operations and cash flows for the three months ended March 31, 2019 and 2018. 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. In conjunction with our adoption of the new lease accounting standard, capital leases, which are now referred to as finance leases, have been reclassified on our balance sheet as of December 31, 2018. This consisted of $88 million reclassified from property, plant and equipment to other assets and $109 million reclassified from long-term debt to other liabilities. See Note 5 and Note 12 for further information on the new lease standard.
Note 2. Impairments and Other Charges
Note 3. Business Segment and Geographic Information
We operate under two divisions, which form the basis for the two operating segments we report: the Completion and Production segment and the Drilling and Evaluation segment. Intersegment revenue was immaterial. 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.
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Three Months Ended March 31 | ||||||
Millions of dollars | 2019 | 2018 | ||||
Revenue: | ||||||
Completion and Production | $ | $ | ||||
Drilling and Evaluation | ||||||
Total revenue | $ | $ | ||||
Operating income: | ||||||
Completion and Production | $ | $ | ||||
Drilling and Evaluation | ||||||
Total operations | ||||||
Corporate and other (a) | ( | ) | ( | ) | ||
Impairments and other charges (b) | ( | ) | ( | ) | ||
Total operating income | $ | $ | ||||
Interest expense, net of interest income | ( | ) | ( | ) | ||
Other, net | ( | ) | ( | ) | ||
Income from continuing operations before income taxes | $ | $ | ||||
(a) Corporate and other includes certain expenses not attributable to a particular business segment, such as costs related to support functions and corporate executives.
(b) During the three months ended March 31, 2019, we recorded $61 million of impairments and other charges, primarily relating to an impairment of fixed assets. See Note 2 for further information. During the three months ended March 31, 2018, we recognized a pre-tax charge of $265 million related to a write-down of all of our remaining investment in Venezuela.
Note 4. Revenue
Revenue is recognized based on the transfer of control or our customer’s 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. The vast majority 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. Determining the transaction price may require significant judgment, which includes identifying performance obligations in the contract, determining whether promised services can be distinguished in the context of the contract, and estimating the amount of variable consideration to include in the transaction price. We also assess our customer’s ability and intention to pay, which is based on a variety of factors, including our customer’s historical payment experience and financial condition. 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 two reportable segments, in addition to geographical area. Based on the location of services provided and products sold, 55 % and 58 % of our consolidated revenue was from the United States for the three months ended March 31, 2019 and 2018, respectively. No other country accounted for more than 10% of our revenue. The following table presents information on our disaggregated revenue.
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Millions of dollars | Three Months Ended March 31 | |||||
Revenue by segment: | 2019 | 2018 | ||||
Completion and Production | $ | $ | ||||
Drilling and Evaluation | ||||||
Total revenue | $ | $ | ||||
Revenue by geographic region: | ||||||
North America | $ | $ | ||||
Latin America | ||||||
Europe/Africa/CIS | ||||||
Middle East/Asia | ||||||
Total revenue | $ | $ | ||||
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, was not material to our condensed consolidated financial statements.
Transaction price allocated to remaining performance obligations
Note 5. Leases
We adopted a comprehensive new lease accounting standard effective January 1, 2019. The details of the significant changes to our accounting policies resulting from the adoption of the new standard are set out below. We adopted the standard using the optional modified retrospective transition method; accordingly, the comparative information as of December 31, 2018 and for the three months ending March 31, 2018 has not been adjusted and continues to be reported under the previous lease standard. Under the new lease standard, assets and liabilities that arise from all leases are required to be recognized on the balance sheet for lessees. Previously, only capital leases, which are now referred to as finance leases, were recorded on the balance sheet. The adoption of this standard resulted in the recognition of approximately $1.1 billion of operating lease right-of-use assets and operating lease liabilities on our condensed consolidated balance sheet as of January 1, 2019. The adoption of this standard did not materially impact our condensed consolidated results of operations for the three months ended March 31, 2019. See Note 12 for additional information about the new accounting standard.
Beginning January 1, 2019, for all leases with a term in excess of 12 months, we recognized a lease liability equal to the present value of the lease payments and a right-of-use asset representing our right to use the underlying asset for the lease term. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term, while finance leases include both an operating expense and an interest expense component. For all leases with a term of 12 months or less, we elected the practical expedient to not recognize lease assets and liabilities. We recognize lease expense for these short-term leases on a straight-line basis over the lease term.
We are a lessee for numerous operating leases, primarily related to real estate, transportation and equipment. The vast majority of our operating leases have remaining lease terms of 10 years or less, some of which include options to extend the leases, and some of which include options to terminate the leases. We generally do not include renewal or termination options in our assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. The
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accounting for some of our leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options. We also have some lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. For certain equipment leases, such as offshore vessels and drilling rigs, we account for the lease and non-lease components separately.
Millions of dollars | Three Months Ended March 31, 2019 | ||
Components of lease expense: | |||
Finance lease cost: | |||
Amortization of right-of-use assets | $ | ||
Interest on lease liabilities | |||
Operating lease cost | |||
Short-term lease cost | |||
Sublease income | ( | ) | |
Total lease cost | $ | ||
Millions of dollars | As of March 31, 2019 | ||
Components of balance sheet: | |||
Operating leases: | |||
Operating lease right-of-use assets (non-current) | $ | ||
Current portion of operating lease liabilities | |||
Operating lease liabilities (non-current) | |||
Finance leases: | |||
Other assets (non-current) | $ | ||
Other current liabilities | |||
Other liabilities (non-current) | |||
Millions of dollars except years and percentages | Three Months Ended March 31, 2019 | ||
Other supplemental information: | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | ||
Operating cash flows from finance leases | |||
Financing cash flows from finance leases | |||
Right-of-use assets obtained in exchange for lease obligations: | |||
Operating leases (a) | $ | ||
Finance leases | |||
Weighted-average remaining lease term: | |||
Operating leases | |||
Finance leases | |||
Weighted-average discount rate for operating leases | % | ||
8
Millions of dollars | Operating Leases | Finance Leases | ||||
2019 | $ | $ | ||||
2020 | ||||||
2021 | ||||||
2022 | ||||||
2023 | ||||||
Thereafter | ||||||
Total lease payments | ||||||
Less imputed interest | ( | ) | ( | ) | ||
Total | $ | $ | ||||
Note 6. Inventories
Millions of dollars | March 31, 2019 | December 31, 2018 | ||||
Finished products and parts | $ | $ | ||||
Raw materials and supplies | ||||||
Work in process | ||||||
Total | $ | $ | ||||
Note 7. Revolving Credit Facility
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Note 8. Shareholders’ Equity
Millions of dollars | Common Shares | 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 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||
Comprehensive income (loss): | |||||||||||||||||||||
Net income | |||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||
Cash dividends ($0.18 per share) | ( | ) | ( | ) | |||||||||||||||||
Stock plans | |||||||||||||||||||||
Other | ( | ) | ( | ) | |||||||||||||||||
Balance at March 31, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||
Millions of dollars | Common Shares | 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, 2017 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||
Comprehensive income (loss): | |||||||||||||||||||||
Net Income | |||||||||||||||||||||
Other comprehensive income | ( | ) | ( | ) | |||||||||||||||||
Cash dividends ($0.18 per share) | ( | ) | ( | ) | |||||||||||||||||
Stock plans | ( | ) | |||||||||||||||||||
Other | ( | ) | |||||||||||||||||||
Balance at March 31, 2018 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||
Millions of dollars | March 31, 2019 | December 31, 2018 | ||||
Defined benefit and other postretirement liability adjustments | $ | ( | ) | $ | ( | ) |
Cumulative translation adjustments | ( | ) | ( | ) | ||
Other | ( | ) | ( | ) | ||
Total accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) |
Note 9. Commitments and Contingencies
Securities and related litigation
Commencing in June 2002, a number of class action lawsuits were filed against us in federal court alleging violations of the federal securities laws arising out of our change in accounting for revenue on long-term construction projects, our 1998 acquisition of Dresser Industries, Inc. and our reserves for asbestos liability exposure. In December 2016, we reached an agreement to settle these lawsuits and in July 2017, the district court issued final approval of the settlement.
The above settlement resolved all pending cases other than Magruder v. Halliburton Co., et. al. (the Magruder case). The allegations in the Magruder case arise out of the same general events described above, but for a later class period, December 8, 2001 to May 28, 2002. Several dismissal motions have been filed in the Magruder case. On March 12, 2019, the case was dismissed with prejudice. The Magruder plaintiff did not appeal and the matter has been concluded.
10
Environmental
We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. In the United States, these laws and regulations include, among others:
- | the Comprehensive Environmental Response, Compensation, and Liability Act; |
- | the Resource Conservation and Recovery Act; |
- | the Clean Air Act; |
- | the Federal Water Pollution Control Act; |
- | the Toxic Substances Control Act; and |
- | the Oil Pollution Act. |
In addition to the federal laws and regulations, states and other countries where we do business often have numerous environmental, legal, and regulatory requirements by which we must abide. We evaluate and address the environmental impact of our operations by assessing and remediating contaminated properties in order to avoid future liabilities and comply with environmental, legal and regulatory requirements. Our Health, Safety and Environment group has several programs in place to maintain environmental leadership and to help prevent the occurrence of environmental contamination. On occasion, we are involved in environmental litigation and claims, including the remediation of properties we own or have operated, as well as efforts to meet or correct compliance-related matters. We do not expect costs related to those claims and remediation requirements to have a material adverse effect on our liquidity, consolidated results of operations, or consolidated financial position. Our accrued liabilities for environmental matters were $49 million as of March 31, 2019 and $42 million as of December 31, 2018. Because our estimated liability is typically within a range and our accrued liability may be the amount on the low end of that range, our actual liability could eventually be well in excess of the amount accrued. Our total liability related to environmental matters covers numerous properties.
Additionally, we have subsidiaries that have been named as potentially responsible parties along with other third parties for six federal and state Superfund sites for which we have established reserves. As of March 31, 2019, those six sites accounted for approximately $14 million of our $49 million total environmental reserve. Despite attempts to resolve these Superfund matters, the relevant regulatory agency may at any time bring suit against us for amounts in excess of the amount accrued. With respect to some Superfund sites, we have been named a potentially responsible party by a regulatory agency; however, in each of those cases, we do not believe we have any material liability. We also could be subject to third-party claims with respect to environmental matters for which we have been named as a potentially responsible party.
Guarantee arrangements
Note 10. Income per Share
Basic income 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 shares represent potential common shares which are excluded from the computation of diluted income per share as their impact would be antidilutive.
11
Three Months Ended March 31 | ||||
Millions of shares | 2019 | 2018 | ||
Basic weighted average common shares outstanding | ||||
Dilutive effect of awards granted under our stock incentive plans | ||||
Diluted weighted average common shares outstanding | ||||
Antidilutive shares: | ||||
Options with exercise price greater than the average market price | ||||
Total antidilutive shares | ||||
Note 11. 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.
March 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||
Millions of dollars | Level 1 | Level 2 | Total fair value | Carrying value | Level 1 | Level 2 | Total fair value | Carrying value | |||||||||||||||||
Total debt | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Note 12. New Accounting Pronouncements
Leases
Effective January 1, 2019, we adopted an accounting standard update issued by the Financial Accounting Standards Board (FASB) related to accounting for leases, which requires lessees to record assets and liabilities that arise for all leases on their balance sheet and expanded financial statement disclosures for both lessees and lessors. Previously, only capital leases were recorded on the balance sheet. This update requires lessees to recognize a lease liability equal to the present value of its lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and instead recognize lease expense for such leases generally on a straight-line basis over the lease term. Leases with a term of longer than 12 months will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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, specialty chemicals, artificial lift, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Pipeline and Process Services, Multi-Chem and Artificial Lift. |
- | our Drilling and Evaluation segment provides field and reservoir modeling, drilling, 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 Consulting 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 located in the United States, Canada, Malaysia, Singapore and the United Kingdom. With approximately 60,000 employees, we operate in more than 80 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.
Financial results
Commodity prices have improved since the beginning of the year, driven by tightening oil supplies and stable demand, and our customers' budgets have been refreshed, which has led to activity improvements for our services during the first quarter of 2019. However, we experienced pricing headwinds throughout the first quarter in North America, and some pricing pressure internationally, leading to mixed operating results for the Company. We generated total company revenue of $5.7 billion during the first quarter of 2019, essentially flat compared to the first quarter of 2018. Total company operating income was $365 million during the first quarter of 2019, a 3% improvement compared to operating income of $354 million in the first quarter of 2018. These operating results included $61 million and $265 million of impairments and other charges during the first quarters of 2019 and 2018, respectively. Our Completion and Production segment revenue decreased 4% from the first quarter of 2018, driven by lower pricing for stimulation services in North America, while our Drilling and Evaluation segment revenue increased 7% from the first quarter of 2018, with activity improvements across all geographic regions.
Our North America revenue decreased 7% in the first quarter of 2019, as compared to the first quarter of 2018, primarily driven by lower pricing for stimulation services in U.S. land. While we incurred significant pricing headwinds throughout the first quarter, we believe the worst of the recent pricing deterioration is behind us. We did, however, experience higher pressure pumping and artificial lift activity in the first quarter of 2019 compared to the first quarter of 2018, as the average United States land rig count grew 7%.
Revenue in our international markets increased 11% in the first quarter of 2019, as compared to the first quarter of 2018, outperforming a 6% increase in the international rig count. This increase resulted primarily from improved stimulation and fluids activity in Latin America, coupled with higher completion tool sales in Middle East/Asia and improved logging activity in Europe/Africa/CIS. We are seeing evidence of a broad-based recovery across all regions, and we expect continued international revenue growth in 2019. Over the last several years, we continued to gain share in key international markets, providing us with a strong base to capitalize on the anticipated recovery.
Business outlook
We believe supply and demand fundamentals for oilfield services support a theme of multi-year industry growth. Our industry is going through a transformation brought on by the shale revolution and the recent down-cycle. The industry has removed substantial costs from the system and introduced significant efficiencies. Many of our customers in North America appear to have shifted their strategy from production growth to operating within cash flow and generating returns.
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In North America, our customers have established their 2019 budgets, activity is improving, and we believe the worst of the recent pricing deterioration is behind us. We work closely with a diverse portfolio of customers who have diverging agendas such as production targets and returns objectives. Given our presence in all basins and exposure to all customer groups, we have the ability to focus on several options to drive a better outcome for our business, including utilization, cost savings and operational efficiency. Building off the momentum we saw towards the end of the first quarter, we believe demand for our services will progress modestly for the remainder of the year.
Overall, we believe the industry's focus on cash flow and returns should lead to stable growth over a longer period of time, which would benefit our business. It allows us to focus on leveraging our supply chain and logistics infrastructure, capture efficiencies around our repair and maintenance programs and implement technologies at scale to reduce cost and increase production, and therefore be more efficient with our investments while generating strong cash flow. As the North America land market rebalances over the next few quarters, we will continue to manage our costs and operating efficiencies in the short-term and believe we are well-positioned for long-term success.
Internationally, while the recovery was initially led by the national oil companies and focused on mature fields, the offshore markets are now entering into recovery mode as project economics are improving. International offshore spending is projected to increase in 2019, and the international offshore rig count is already experiencing growth to support this projection. We expect Latin America activity to improve this year, and this region has long-term growth potential. Activity improvements are also expected in the Middle East following rig additions, with pricing pressure expected to continue. We also expect continued activity growth in Asia Pacific and Africa with modest pricing improvements in these areas. As capacity tightens internationally and the pipeline of projects progressively expands, we expect to continue demonstrating rational, returns-driven growth in the international markets. The pricing discussions with our customers in some markets have become more constructive, and we expect this momentum to build going into 2020. We believe we are well-positioned for the anticipated recovery, and we expect to benefit from responsible capital stewardship, prioritizing capital efficiency, investing in the technologies that deliver differentiation and returns and generating strong cash flow.
During the first quarter of 2019, our capital expenditures were approximately $437 million, a decrease of 13% from the first quarter of 2018. These capital expenditures were predominantly in our Production Enhancement, Sperry Drilling, Wireline and Perforating, Production Solutions, and Artificial Lift product service lines. We expect our full year 2019 capital expenditures will be $1.6 billion, a 20% decrease from 2018, as we significantly reduced our North America pressure pumping capital budget this year as the services industry adjusts to market conditions. The capital that we spend will be mostly directed towards improving efficiency, reducing emissions and refurbishing equipment.
We intend to continue to strengthen our product service lines through a combination of organic growth, investment and selective acquisitions. We plan to continue executing the following strategies in 2019:
- | directing capital and resources that differentiate our service and product offerings into strategic markets, including unconventionals and mature fields; |
- | collaborating and engineering solutions to maximize asset value for our customers; |
- | leveraging our broad technology offerings to provide value to our customers and enable them to more efficiently drill and complete their wells; |
- | exploring additional opportunities for acquisitions that will enhance or augment our current portfolio of services and products, including those with unique technologies or distribution networks in areas where we do not already have significant operations; |
- | investing in technology that will help our customers reduce reservoir uncertainty and increase operational efficiency; |
- | improving working capital and managing our balance sheet to maximize our financial flexibility; |
- | seeking additional ways to be one of the most cost-efficient service providers in the industry by maintaining capital discipline and leveraging our scale and breadth of operations; and |
- | striving to achieve superior growth and returns for our shareholders. |
Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”
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. As of March 31, 2019, we had $1.4 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 and Capital Resources” and “Business Environment and Results of Operations.”
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2019, we had $1.4 billion of cash and equivalents, compared to $2.0 billion of cash and equivalents at December 31, 2018.
Significant sources and uses of cash during the first three months of 2019
- Cash flows used in operating activities was $44 million. This included what we expect are short-term changes in the primary components of our working capital (receivables, inventories and accounts payable) of a net $515 million, primarily related to some customer payment delays and a build-up of inventory primarily for the international roll out of our strategic investments.
- Capital expenditures were $437 million and were predominantly made in our Production Enhancement, Sperry Drilling, Wireline and Perforating, Production Solutions, and Artificial Lift product service lines.
- We paid $157 million in dividends to our shareholders.
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. Capital spending for the full year 2019 is currently expected to be approximately $1.6 billion, a decrease of 20% from 2018, as we remain committed to maintaining capital discipline.
Currently, our quarterly dividend rate is $0.18 per common share, or approximately $157 million. Subject to Board of Directors approval, our intention is to continue paying dividends at our current rate during 2019. Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.3 billion remained authorized for repurchases as of March 31, 2019 and may be used for open market and other share purchases.
Other factors affecting liquidity
Financial position in current market. As of March 31, 2019, we had $1.4 billion of cash and equivalents and $3.5 billion of available committed bank credit under our revolving credit facility. 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 our global cash needs for the remainder of 2019, 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 $2.1 billion of letters of credit, bank guarantees or surety bonds were outstanding as of March 31, 2019. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.
Credit ratings. Our credit ratings with Standard & Poor’s (S&P) remain A- for our long-term debt and A-2 for our short-term debt, with a stable 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 stable outlook.
Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing 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. 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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BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS
We operate in more than 80 countries throughout the world to provide a comprehensive range of services and products to the energy industry. A significant amount of our consolidated revenue is derived 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 quarter of 2019, based upon the location of the services provided and products sold, 55% of our consolidated revenue was from the United States, compared to 58% of consolidated revenue from the United States in the first quarter of 2018. 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.
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, government regulation and global stability, which together drive worldwide drilling and completions activity. 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.
The following table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:
Three Months Ended March 31 | Year Ended December 31 | ||||||||
2019 | 2018 | 2018 | |||||||
Oil price - WTI (1) | $ | 54.83 | $ | 62.88 | $ | 64.94 | |||
Oil price - Brent (1) | 63.17 | 66.81 | 71.08 | ||||||
Natural gas price - Henry Hub (2) | 2.92 | 3.08 | 3.17 | ||||||
(1) Oil price measured in dollars per barrel (2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu | |||||||||
The historical average rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:
Three Months Ended March 31 | Year Ended December 31 | |||||
2019 | 2018 | 2018 | ||||
U.S. Land | 1,022 | 951 | 1,013 | |||
U.S. Offshore | 21 | 16 | 19 | |||
Canada | 183 | 269 | 191 | |||
North America | 1,226 | 1,236 | 1,223 | |||
International | 1,030 | 971 | 988 | |||
Worldwide total | 2,256 | 2,207 | 2,211 | |||
Crude oil prices have been extremely volatile over the past few years. WTI oil spot prices declined significantly beginning in 2014 from a peak price of $108 per barrel in June 2014 to a low of $26 per barrel in February 2016, a level which had not been experienced since 2003. Since the low point experienced in early 2016, oil prices increased substantially, with
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WTI oil spot prices reaching a high of $77 per barrel in June 2018. In late 2018, oil prices again declined with WTI oil spot prices reaching a low of $44 per barrel in December, but have since risen to a high of $66 per barrel in April 2019. The average WTI and Brent crude oil spot prices during the first quarter of 2019 were $55 per barrel and $63 per barrel, respectively.
In the United States Energy Information Administration (EIA) April 2019 "Short Term Energy Outlook," the EIA projects Brent prices to average $65 per barrel in 2019 and $62 per barrel in 2020, while WTI prices are projected to average approximately $8 less per barrel in the first half of 2019, before the discount to Brent gradually falls to approximately $4 in late 2019 through 2020. Crude oil production in the United States is now projected to average 12.4 million barrels per day in 2019, a 14% increase from 2018. Additionally, the EIA projects that U.S. production will increase 6% in 2020, to average 13.1 million barrels per day. The International Energy Agency's (IEA) April 2019 "Oil Market Report" forecasts the 2019 global demand to average approximately 100.6 million barrels per day, which is up 1.5% from 2018, driven by an increase in the Asia Pacific region, while all other regions remain approximately the same.
The Henry Hub natural gas spot price averaged $2.92 per MMBtu in the first quarter of 2019, a decrease of $0.16 per MMBtu, or 5%, from the first quarter of 2018. The EIA April 2019 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.82 per MMBtu in 2019 and $2.77 per MMBtu in 2020.
North America operations
During the first quarter of 2019, the average United States land rig count increased 7%, as compared to the first quarter of 2018, and completions activity continued to strengthen with higher pressure pumping and artificial lift activity during the quarter. However, we continued to face significant pricing headwinds throughout the first quarter of 2019, although we believe the worst of the recent pricing deterioration is behind us. Overall, customer spending for the full year 2019 is expected to decrease in North America as compared to 2018. We expect that less spending by operators and low pricing will result in lower capital spending by service companies, which in turn will lead to a decrease in the available supply of equipment. If operators and service companies adjust to this new environment, we believe supply and demand for the U.S. pressure pumping market will rebalance throughout the year.
International operations
The average international rig count for the first quarter of 2019 was up 6% compared to the first quarter of 2018. As capacity tightens internationally and if the pipeline of projects progressively expands as we expect, we plan to continue demonstrating rational, returns-driven growth in the international markets. While the international markets are continuing to improve, the markets are in the early stages of a recovery and pricing pressure remains a challenge in a competitive landscape. The international recovery was originally focused on mature fields as customers broadly favored shorter cycle returns and lower risk projects. We believe the offshore markets are now also entering a recovery, as project economics become more attractive. International offshore spending is projected to increase in 2019, and the international offshore rig count is already experiencing growth to support this projection. We believe we are well-positioned for continued growth as a result of the significant investments we made to grow our global footprint in the last cycle.
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RESULTS OF OPERATIONS IN 2019 COMPARED TO 2018
Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018
Revenue: | Three Months Ended March 31 | Favorable | Percentage | ||||||||
Millions of dollars | 2019 | 2018 | (Unfavorable) | Change | |||||||
Completion and Production | $ | 3,662 | $ | 3,807 | $ | (145 | ) | (4 | )% | ||
Drilling and Evaluation | 2,075 | 1,933 | 142 | 7 | |||||||
Total revenue | $ | 5,737 | $ | 5,740 | $ | (3 | ) | — | % | ||
By geographic region: | |||||||||||
North America | $ | 3,275 | $ | 3,517 | $ | (242 | ) | (7 | )% | ||
Latin America | 587 | 457 | 130 | 28 | |||||||
Europe/Africa/CIS | 748 | 716 | 32 | 4 | |||||||
Middle East/Asia | 1,127 | 1,050 | 77 | 7 | |||||||
Total revenue | $ | 5,737 | $ | 5,740 | $ | (3 | ) | — | % | ||
Operating income (loss): | Three Months Ended March 31 | Favorable | Percentage | ||||||||
Millions of dollars | 2019 | 2018 | (Unfavorable) | Change | |||||||
Completion and Production | $ | 368 | $ | 500 | $ | (132 | ) | (26 | )% | ||
Drilling and Evaluation | 123 | 188 | (65 | ) | (35 | ) | |||||
Total | 491 | 688 | (197 | ) | (29 | ) | |||||
Corporate and other | (65 | ) | (69 | ) | 4 | 6 | |||||
Impairments and other charges | (61 | ) | (265 | ) | 204 | 77 | |||||
Total operating income | $ | 365 | $ | 354 | $ | 11 | 3 | % | |||
Consolidated revenue was $5.7 billion in the first quarter of 2019, essentially flat compared to the first quarter of 2018. Consolidated operating income was $365 million during the first quarter of 2019, a 3% increase from operating income of $354 million in the first quarter of 2018. We experienced improvements across the majority of our product service lines, primarily as a result of higher artificial lift activity in U.S. land, higher logging activity globally, and higher completion tool sales in Middle East/Asia and Latin America. These improvements were offset as a result of pricing pressure, primarily related to stimulation services, and mobilization costs on multiple drilling projects internationally. Operating results were also impacted by $61 million and $265 million of impairments and other charges during the first quarter of 2019 and 2018, respectively. Revenue from North America was 57% of consolidated revenue in the first quarter of 2019, compared to 61% of consolidated revenue in the first quarter of 2018.
OPERATING SEGMENTS
Completion and Production
Completion and Production revenue in the first quarter of 2019 was $3.7 billion, a decrease of $145 million, or 4%, from the first quarter of 2018. Operating income in the first quarter of 2019 was $368 million, a decrease of $132 million, or 26%, from the first quarter of 2018. These decreases were primarily driven by lower pricing for stimulation services in U.S. land, partially offset by higher artificial lift activity in U.S. land, increased stimulation activity in Latin America, and higher completion tool sales in Middle East/Asia and Latin America.
Drilling and Evaluation
Drilling and Evaluation revenue in the first quarter of 2019 was $2.1 billion, an increase of $142 million, or 7%, from the first quarter of 2018, with activity improvements across all geographic regions. This increase primarily related to higher logging and project management activity globally and improved fluids activity in Latin America. Operating income in the first quarter of 2019 was $123 million, a decrease of $65 million, or 35%, compared to the first quarter of 2018, resulting primarily
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from mobilization costs that we incurred on multiple drilling projects internationally, coupled with reduced project management activity and lower pricing in the Middle East.
GEOGRAPHIC REGIONS
North America
North America revenue in the first quarter of 2019 was $3.3 billion, a 7% decrease compared to the first quarter of 2018. This decrease was primarily driven by lower pricing for stimulation services in U.S. land, partially offset by higher artificial lift, cementing, and stimulation services activity.
Latin America
Latin America revenue in the first quarter of 2019 was $587 million, a 28% increase compared to the first quarter of 2018, resulting primarily from higher activity for the majority of our product service lines in Mexico, higher stimulation activity in Argentina and improved fluids activity throughout the region. This was partially offset by reduced drilling and testing activity in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the first quarter of 2019 was $748 million, a 4% increase compared to the first quarter of 2018, primarily driven by higher activity across multiple product service lines in Ghana and the United Kingdom. These results were partially offset by lower drilling related activity in Azerbaijan.
Middle East/Asia
Middle East/Asia revenue in the first quarter of 2019 was $1.1 billion, a 7% increase compared to the first quarter of 2018, largely resulting from higher completion tool sales across the region, coupled with increased project management activity in India and improved drilling activity in the Middle East. These improvements were partially offset by reduced fluids activity and lower pricing in the Middle East.
OTHER OPERATING ITEMS
Impairments and other charges were $61 million in the three months ended March 31, 2019, primarily related to an impairment of fixed assets. See Note 2 to the condensed consolidated financial statements for further discussion on the first quarter charge. This compares to $265 million of impairments and other charges in the three months ended March 31, 2018, representing a write-down of all of our remaining investment in Venezuela.
NONOPERATING ITEMS
Effective tax rate. During the three months ended March 31, 2019, we recorded a total income tax provision of $40 million on pre-tax income of $192 million, resulting in an effective tax rate of 20.9%. During the three months ended March 31, 2018, we recorded a total income tax provision of $142 million on pre-tax income of $189 million, resulting in an effective tax rate of 75.4%. Our effective tax rate during the first quarter of 2018 was significantly impacted by our investment write-down in Venezuela for which we are not recognizing a corresponding tax benefit since the write-down is not tax-deductible, along with additional accrued local Venezuela taxes we recognized in our tax provision. Our effective tax rates for both periods were also impacted by the geographic mix of earnings during the respective periods.
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ENVIRONMENTAL MATTERS
We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. For information related to environmental matters, see Note 9 to the condensed consolidated financial statements.
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 2018 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2018.
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 March 31, 2019 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 March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information related to Item 1. Legal Proceedings is included in Note 9 to the condensed consolidated financial statements.
Item 1(a). Risk Factors
The statements in this section describe the known material risks to our business and should be considered carefully. As of March 31, 2019, there have been no material changes in risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
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 March 31, 2019.
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) | |
January 1 - 31 | 218,492 | $28.49 | — | $5,300,007,172 | |
February 1 - 28 | 25,854 | $29.98 | — | $5,300,007,172 | |
March 1 - 31 | 16,058 | $31.19 | — | $5,300,007,172 | |
Total | 260,404 | $28.80 | — | ||
(a) | All of the 260,404 shares purchased during the three-month period ended March 31, 2019 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 $5.3 billion remained authorized for repurchases as of March 31, 2019. From the inception of this program in February 2006 through March 31, 2019, we repurchased approximately 212 million shares of our common stock for a total cost of approximately $8.8 billion. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Our barite and bentonite mining operations, in support of our fluid services business, are subject to regulation by the federal 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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Item 6. Exhibits
10.1 | ||
* | 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 |
* | Filed with this Form 10-Q. | |
** | Furnished with this Form 10-Q. | |
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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 | Vice President and |
Chief Financial Officer | Corporate Controller |
Date: April 26, 2019
23
Exhibit 31.1
Section 302 Certification
I, Jeffrey A. Miller, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2019 of Halliburton Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 26, 2019
/s/ Jeffrey A. Miller
Jeffrey A. Miller
President and Chief Executive Officer
Halliburton Company
Exhibit 31.2
Section 302 Certification
I, Lance Loeffler, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2019 of Halliburton Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 26, 2019
/s/ Lance Loeffler
Lance Loeffler
Executive Vice President and Chief Financial Officer
Halliburton Company
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended March 31, 2019 of Halliburton Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).
I, Jeffrey A. Miller, President and Chief Executive Officer of the Company, certify that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Jeffrey A. Miller
Jeffrey A. Miller
President and Chief Executive Officer
Date: April 26, 2019
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended March 31, 2019 of Halliburton Company (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).
I, Lance Loeffler, Executive Vice President and Chief Financial Officer of the Company, certify that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Lance Loeffler
Lance Loeffler
Executive Vice President and Chief Financial Officer
Date: April 26, 2019
Exhibit 95
Mine Safety Disclosures
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a mine is required to include certain mine safety results in its periodic reports filed with the SEC. The operation of our mines is subject to regulation by the federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (Mine Act). Below, we present the following items regarding certain mining safety and health matters for the quarter ended March 31, 2019:
▪ | total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under section 104 of the Mine Act for which we have received a citation from MSHA; |
▪ | total number of orders issued under section 104(b) of the Mine Act, which covers violations that had previously been cited under section 104(a) that, upon follow-up inspection by MSHA, are found not to have been totally abated within the prescribed time period, which results in the issuance of an order requiring the mine operator to immediately withdraw all persons (except certain authorized persons) from the mine; |
▪ | total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act; |
▪ | total number of flagrant violations (i.e., reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury) under section 110(b)(2) of the Mine Act; |
▪ | total number of imminent danger orders (i.e., the existence of any condition or practice in a mine which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated) issued under section 107(a) of the Mine Act; |
▪ | total dollar value of proposed assessments from MSHA under the Mine Act; |
▪ | total number of mining-related fatalities; and |
▪ | total number of pending legal actions before the Federal Mine Safety and Health Review Commission involving such mine. |
HALLIBURTON COMPANY | |||||||||||||||||
Mine Safety Disclosures | |||||||||||||||||
Quarter Ended March 31, 2019 | |||||||||||||||||
(Unaudited) | |||||||||||||||||
(Whole dollars) | |||||||||||||||||
Operation/ MSHA Identification Number(1) | Section 104 Citations | Section 104(b) Orders | 104(d) Citations and Orders | Section 110(b)(2) Violations | Section 107(a) Orders | Proposed MSHA Assessments(2) | Fatalities | Pending Legal Actions | |||||||||
BPM Colony Mill/4800070 | 2 | — | — | — | — | $ | 1,804 | — | — | ||||||||
BPM Colony Mine/4800889 | — | — | — | — | — | — | — | — | |||||||||
BPM Lovell Mill/4801405 | — | — | — | — | — | — | — | — | |||||||||
BPM Lovell Mine/4801016 | — | — | — | — | — | — | — | — | |||||||||
Corpus Christi Grinding Plant/4104010 | — | — | — | — | — | — | — | — | |||||||||
Dunphy Mill/2600412 | — | — | — | — | — | — | — | — | |||||||||
Lake Charles Plant/1601032 | — | — | — | — | — | — | — | — | |||||||||
Larose Grinding Plant/1601504 | — | — | — | — | — | — | — | — | |||||||||
Rossi Jig Plant/2602239 | — | — | — | — | — | — | — | — | |||||||||
Total | 2 | — | — | — | — | $ | 1,804 | — | — | ||||||||
(1) | The definition of a mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools and preparation facilities. Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine. |
(2) | Amounts included are the total dollar value of proposed or outstanding assessments received from MSHA on or before April 9, 2019 regardless of whether the assessment has been challenged or appealed, for citations and orders occurring during the quarter ended March 31, 2019. |
In addition, as required by the reporting requirements regarding mine safety included in §1503(a)(2) of the Dodd-Frank Act, the following is a list for the quarter ended March 31, 2019, of each mine of which we or a subsidiary of ours is an operator, that has received written notice from MSHA of:
(a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under
§104(e) of the Mine Act:
None; or
(b) the potential to have such a pattern:
None.
Citations and orders can be contested and appealed, and as part of that process, are sometimes reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary by inspector and also vary depending on the size and type of the operation.