# Halliburton Co: Form 10-Q for the period ended Mar 31, 2012

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2012-04-24
- Accepted by EDGAR: Apr 24, 2012, 16:56 ET
- Period: 2012-03-31
- Accession: 0000045012-12-000146
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501212000146/edmarch201210q_final.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501212000146/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2012-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2012-01-01 to 2012-03-31 | $6.87bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2012-01-01 to 2012-03-31 | $1.24bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2012-01-01 to 2012-03-31 | $1.02bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2012-01-01 to 2012-03-31 | $304.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2012-01-01 to 2012-03-31 | $627.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2012-01-01 to 2012-03-31 | $0.68 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2012-01-01 to 2012-03-31 | $0.68 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2012-01-01 to 2012-03-31 | 926,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2012-01-01 to 2012-03-31 | $734.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2012-01-01 to 2012-03-31 | $782.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2012-01-01 to 2012-03-31 | $83.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2012-03-31 | $2.65bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2012-03-31 | $12.02bn | us-gaap:AssetsCurrent |
| Total assets | at 2012-03-31 | $24.67bn | us-gaap:Assets |
| Current liabilities | at 2012-03-31 | $4.31bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2012-03-31 | $10.80bn | us-gaap:Liabilities |
| Long-term debt | at 2012-03-31 | $4.82bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2012-03-31 | $13.84bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,480 characters.

### EXECUTIVE OVERVIEW

### Organization

We are a leading provider of services and products to the energy industry. We serve the upstream oil and natural gas industry 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 through the life of the field. 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, Completion and Production and Drilling and Evaluation:

- our Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion services. The segment consists of Halliburton Production Enhancement, Cementing, Completion Tools, Boots & Coots, and Multi-Chem; and
- our Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation, and precise wellbore placement solutions that enable customers to model, measure, and optimize their well construction activities. The segment consists of Halliburton Drill Bits and Services, Wireline and Perforating, Testing and Subsea, Baroid, Sperry Drilling, Landmark Software and Services, 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 significant manufacturing operations in various locations, including, but not limited to, the United States, Canada, the United Kingdom, Malaysia, Mexico, Brazil, and Singapore. With nearly 70,000 employees, we operate in approximately 80 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

### Financial results

During the first quarter of 2012, we produced revenue of $6.9 billion and operating income of $1.0 billion, reflecting an operating margin of approximately 15%. Revenue increased $1.6 billion, or 30%, from the first quarter of 2011, while operating income increased $209 million, or 26%. These results were due mainly to higher drilling activity and pricing improvements in North America, as well as increased activity in all our international regions, compared to the first quarter of 2011. The first quarter of 2012 results included a $300 million, pre-tax, loss contingency for the Macondo well incident. The first quarter of 2011 results were negatively impacted by a $59 million, pre-tax, charge in Libya, primarily related to reserves for certain assets.

### Business outlook

We continue to believe in the strength of the long-term fundamentals of our business. Energy demand is expected to increase in the long term driven by economic growth in developing countries and despite current underlying downside risks in the industry, including sluggish growth in developed countries and supply uncertainties associated with geopolitical tensions in the Middle East. Furthermore, development of new resources is expected to be more complex resulting in increasing service intensity.

In North America, the industry is experiencing a shift from natural gas shale plays to oil and liquids-rich shale plays due to the low natural gas prices resulting from the resiliency of natural gas production coupled with natural gas inventory at peak levels and a mild winter. We believe we will continue to see further declines in natural gas drilling until the oversupply situation is corrected. We expect the reduction in natural gas drilling may be offset, however, by an increase in oil and liquids-rich drilling activity due to the relatively stable liquids prices. The transition from natural gas to oil and liquids-rich plays in the long term should be positive for our business as completing oil and liquids-rich wells requires higher levels of service intensity. We anticipate near-term pricing pressure in certain markets and continued cost inflation.

In 2011, our Gulf of Mexico business began to recover due to an increase in the level of permit approvals for deepwater drilling. We remain optimistic about the recovery of activity in the Gulf of Mexico as our customers adapt to new regulations and new permit approvals are issued. In addition, more deepwater rigs are expected to arrive in the Gulf of Mexico over the course of this year. We believe that an increasing pace of permit applications and approvals needs to be sustained in order for the Gulf of Mexico business to recover to activity levels experienced before the Macondo well incident. See “Business Environment and Results of Operations,” Note 6 to the condensed consolidated financial statements, and Part II, Item 1. “Legal Proceedings.”

Outside of North America, revenue and operating income increased in the first quarter of 2012 compared to the first quarter of 2011.We believe competitive pricing internationally will continue throughout 2012. However, we also believe that new international unconventional oil and natural gas projects may contribute to activity improvements this year. Recently, our operations in Egypt have recovered from the turmoil experienced in the first quarter of 2011. Although some minor work has been performed in Libya, we are still awaiting well-defined operational plans from our customers. We do not expect activity levels in Libya to recover to pre-2011 levels until late 2012 or 2013. We continue to believe that international pricing will remain competitive, particularly in regard to larger projects. However, for the remainder of the year, we expect to see gradual activity improvements as new rigs enter the international markets.

We are continuing to execute several key initiatives in 2012. These initiatives involve increasing manufacturing production in the Eastern Hemisphere and reinventing our service delivery platform to lower our delivery costs.

Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”

### Financial markets, liquidity, and capital resources

Since mid-2008, the global financial markets have been somewhat volatile. While this has created additional risks for our business, we believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations. For additional information, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”

### LIQUIDITY AND CAPITAL RESOURCES

We ended the first quarter of 2012 and the year ended December 31, 2011 with cash and equivalents of $2.7 billion. As of March 31, 2012, $460 million of the $2.7 billion of cash and equivalents was held by our foreign subsidiaries that would be subject to tax if repatriated. If these funds are needed for our operations in the United States, we would be required to accrue and pay United States taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate them to fund our United States operations. We also held $100 million of short-term, United States Treasury securities at March 31, 2012 compared to $150 million at December 31, 2011 included in “Other current assets” on our condensed consolidated balance sheets.

### Significant sources of cash

Cash flows from operating activities contributed $734 million to cash in the first quarter of 2012.

During the first quarter of 2012, we sold or redeemed approximately $150 million of short-term marketable securities.

### Significant uses of cash

Capital expenditures were $782 million in the first quarter of 2012 and were predominantly made in Halliburton Production Enhancement, Sperry Drilling, Cementing, and Wireline and Perforating. We have also invested additional working capital to support the growth of our business.

During the first quarter of 2012, we purchased $100 million in short-term marketable securities.

We paid $83 million in dividends to our shareholders in the first quarter of 2012.

*Future uses of cash.* Capital spending for 2012 is expected to range between $3.5 billion to $4.0 billion. The capital expenditures plan for 2012 is primarily directed toward Halliburton Production Enhancement, Sperry Drilling, Cementing, and Wireline and Perforating.

We are continuing to explore 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 large operations.

Subject to Board of Directors approval, we expect to pay dividends of approximately $80 million per quarter during 2012. We also have approximately $1.7 billion remaining available under our share repurchase authorization, which may be used for open market share purchases.

### Other factors affecting liquidity

*Guarantee agreements.* In the normal course of business, we have agreements with financial institutions under which approximately $1.8 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of March 31, 2012, including $292 million of surety bonds related to Venezuela. See “Business Environment and Results of Operations – International Operations” for further discussion related to Venezuela. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

*Financial position in current market.* We have $2.7 billion of cash and equivalents and $100 million in investments in marketable securities as of March 31, 2012 and a total of $2.0 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. Although a portion of earnings from our foreign subsidiaries is reinvested outside the United States indefinitely, we do not consider this to have a significant impact on our liquidity. We currently believe that our capital expenditures, working capital investments, and dividends, if any, in 2012 can be fully funded through cash from operations.

As a result, we believe we have a reasonable amount of liquidity and, if necessary, additional financing flexibility given the current market environment to fund our potential contingent liabilities, if any. However, as discussed above in Note 6 to the condensed consolidated financial statements, there are numerous future developments that may arise as a result of the Macondo well incident that could have a material adverse effect on our liquidity.

*Credit ratings.* Credit ratings for our long-term debt remain A2 with Moody’s Investors Service and A with Standard & Poor’s. The credit ratings on our short-term debt remain P-1 with Moody’s Investors Service and A-1 with Standard & Poor’s.

*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. For example, we continue to see delays in receiving payment on our receivables from one of our primary customers in Venezuela. If our customers delay in 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.

### BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 80 countries throughout the world to provide a comprehensive range of discrete and integrated services and products to the energy industry. The majority of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. We serve the upstream oil and natural gas industry 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 field. Our two business segments are the Completion and Production segment and the Drilling and Evaluation segment. The industries we serve are highly competitive with many substantial competitors in each segment. In the first quarter of 2012, based upon the location of the services provided and products sold, 56% of our consolidated revenue was from the United States. In the first quarter of 2011, 52% of our consolidated revenue was from the United States. No other country accounted for more than 10% of our revenue during these periods.

Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, expropriation or other governmental actions, inflation, foreign currency exchange restrictions, and highly inflationary currencies. We believe the geographic diversification of our business activities reduces the risk that loss of operations in any one country, other than the United States, would be materially adverse to our consolidated results of operations.

Activity levels within our business segments are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and natural gas companies. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption.

Some of the more significant measures of current and future spending levels of oil and natural gas companies are oil and natural gas prices, the world economy, the availability of credit, government regulation, and global stability, which together drive worldwide drilling activity. Our financial performance is significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the following tables.

This table shows the average oil and natural gas prices for West Texas Intermediate (WTI), United Kingdom Brent crude oil, and Henry Hub natural gas:

| Average Oil Prices (dollars per barrel) | Three Months Ended March 31 2012 | 2011 | Year Ended December 31 2011 |
| --- | ---: | ---: | ---: |
| West Texas Intermediate | $102.88 | $93.54 | $95.13 |
| United Kingdom Brent | 118.49 | 104.96 | 111.53 |
| Average United States Natural Gas Prices (dollars per |  |  |  |
| thousand cubic feet, or Mcf) |  |  |  |
| Henry Hub | $2.62 | $4.29 | $4.09 |

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The quarterly and year-to-date average rig counts based on the Baker Hughes Incorporated rig count information were as follows:

| Land vs. Offshore United States: | Three Months Ended March 31 2012 2011 | Year Ended December 31 2011 |
| --- | ---: | ---: |
| Land | 1,948 1,690 | 1,843 |
| Offshore (incl. Gulf of Mexico) | 42 26 | 32 |
| Total | 1,990 1,716 | 1,875 |
| Canada: |  |  |
| Land | 591 585 | 422 |
| Offshore | – 2 | 1 |
| Total | 591 587 | 423 |
| International (excluding Canada): |  |  |
| Land | 879 862 | 863 |
| Offshore | 310 304 | 304 |
| Total | 1,189 1,166 | 1,167 |
| Worldwide total | 3,770 3,469 | 3,465 |
| Land total | 3,418 3,137 | 3,128 |
| Offshore total | 352 332 | 337 |
|  | Three Months Ended | Year Ended |
|  | March 31 | December 31 |
| **Oil vs. Natural Gas** | 2012 2011 | 2011 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 1,262 812 | 984 |
| Natural gas | 728 904 | 891 |
| Total | 1,990 1,716 | 1,875 |
| Canada: |  |  |
| Oil | 423 403 | 282 |
| Natural gas | 168 184 | 141 |
| Total | 591 587 | 423 |
| International (excluding Canada): |  |  |
| Oil | 942 912 | 918 |
| Natural gas | 247 254 | 249 |
| Total | 1,189 1,166 | 1,167 |
| Worldwide total | 3,770 3,469 | 3,465 |
| Oil total | 2,627 2,127 | 2,184 |
| Natural gas total | 1,143 1,342 | 1,281 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended March 31 2012 | 2011 | Year Ended December 31 2011 |
| --- | ---: | ---: | ---: |
| Horizontal | 1,172 | 978 | 1,074 |
| Vertical | 601 | 512 | 571 |
| Directional | 217 | 226 | 230 |
| Total | 1,990 | 1,716 | 1,875 |

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Our customers’ cash flows, in many instances, depend upon the revenue they generate from the sale of oil and natural gas. Lower oil and natural gas prices usually translate into lower exploration and production budgets. The opposite is true for higher oil and natural gas prices.

WTI oil spot prices fluctuated throughout 2011 between a low of approximately $75 per barrel to a high of approximately $113 per barrel. During the first quarter of 2012, oil spot prices have remained relatively stable at approximately $100 per barrel, primarily due to geopolitical tension in the Middle East and global economic uncertainty surrounding the European debt crisis. Natural gas prices in the United States, on the other hand, have declined 39% from the first quarter of 2011 due to the resiliency of natural gas production coupled with natural gas inventory at peak levels and a mild winter. In response, our customers have curtailed natural gas drilling activity. The outlook for world petroleum demand for 2012 remains mixed, with the International Energy Agency’s (IEA) April 2012 “Oil Market Report” continuing to forecast a 1% increase over 2011 levels. In spite of this tempered outlook, we believe that, over the long term, hydrocarbon demand will generally increase. Increased demand, combined with the underlying trends of smaller and more complex reservoirs, high depletion rates, and the need for continual reserve replacement, should drive the long-term need for our services and products.

### North America operations

Depressed natural gas prices can impact our customers’ drilling and production activities, particularly in North America. The decline in natural gas prices compared to the first quarter of 2011 has accelerated the shift from natural gas shale plays to oil and liquids-rich shale plays. Gas directed rig count has fallen by 192 rigs, or 18%, while oil directed rig count has increased by 470 rigs, or 39%. This transition has resulted in additional relocation costs, inefficiencies, and cost inflation, all of which negatively impacted our margins in the first quarter of 2012. In the long run, we believe the shift to oil and liquids-rich shale basins will continue to drive increased service intensity, not only in terms of horsepower required per job, but also in fluid chemistry and other technologies required for these complex reservoirs. Pricing, however, may be tempered as competition increases in these oil and liquids-rich plays.

Deepwater drilling activity in the Gulf of Mexico continues to recover due to an increase in drilling permit approvals. We believe we will see an increase in the level of permit approvals through 2012, leading to additional deepwater rigs arriving in the Gulf of Mexico. Our business in the Gulf of Mexico represented approximately 13% of our North America revenue in the first quarter of 2010 and approximately 6% in the first quarter of 2011 and the first quarter of 2012. In addition, the Gulf of Mexico represented approximately 6% of our consolidated revenue in the first quarter of 2010, approximately 4% in the first quarter of 2011, and approximately 3% in the first quarter of 2012. Over the long term, we do not know the extent to which the Macondo well incident or resulting drilling regulations will impact our revenue and earnings, as they are dependent on, among other things, governmental approvals for permits, our customers’ actions, and the potential movement of deepwater rigs to or from other markets.

### International operations

During 2011, operating income outside North America declined primarily due to pricing pressures from over capacity and geopolitical disruptions in North Africa. For the remainder of 2012, however, we anticipate that the industry will experience steady volume increases as macroeconomic trends support a more favorable operator spending outlook and new rigs are scheduled to enter the market. We believe these trends will eventually lead to meaningful absorption of equipment supply. International rig count has improved by 23 rigs, or 2%, since the first quarter of 2011. Despite this increased volume, we continue to believe that international pricing will remain competitive, particularly for larger projects. We also believe that international unconventional oil and natural gas projects will contribute to activity improvements, and we plan to leverage our extensive experience in North America to optimize these opportunities. Consistent with our long-term strategy to grow our operations outside of North America, we also expect to continue to invest capital in our international operations.

*Venezuela.* As of March 31, 2012, our total net investment in Venezuela was approximately $217 million. In addition to this amount, we have $292 million of surety bond guarantees outstanding relating to our Venezuelan operations.

### Initiatives

#### Following is a brief discussion of some of our recent and current initiatives:

- increasing our market share in the more economic, unconventional plays, mature fields, and deepwater markets by leveraging our broad technology offerings to provide value to our customers through integrated solutions and the ability to more efficiently drill and complete their wells;
- exploring 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 large operations;
- making key investments in technology and capital to accelerate growth opportunities. To that end, we are continuing to push our technology and manufacturing development, as well as our supply chain, closer to our customers in the Eastern Hemisphere;
- improving working capital, and managing our balance sheet to maximize our financial flexibility. We have launched a global project to improve service delivery that we expect to result in, among other things, additional investments in our systems and significant improvements to our current order-to-cash and purchase-to-pay processes;
- continuing to seek ways to be one of the most cost efficient service providers in the industry by using our scale and breadth of operations; and
- expanding our business with national oil companies.

33

### RESULTS OF OPERATIONS IN 2012 COMPARED TO 2011

### Three Months Ended March 31, 2012 Compared with Three Months Ended March 31, 2011

| REVENUE: Millions of dollars | Three Months Ended March 31 2012 | 2011 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,290 | $3,172 | $1,118 | 35% |
| Drilling and Evaluation | 2,578 | 2,110 | 468 | 22 |
| Total revenue | $6,868 | $5,282 | $1,586 | 30% |

*By geographic region:*

| Completion and Production: |  |  |  |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $3,182 | $2,221 | $961 | 43% |
| Latin America | 306 | 240 | 66 | 28 |
| Europe/Africa/CIS | 456 | 401 | 55 | 14 |
| Middle East/Asia | 346 | 310 | 36 | 12 |
| Total | 4,290 | 3,172 | 1,118 | 35 |
| Drilling and Evaluation: |  |  |  |  |
| North America | 986 | 761 | 225 | 30 |
| Latin America | 474 | 372 | 102 | 27 |
| Europe/Africa/CIS | 556 | 510 | 46 | 9 |
| Middle East/Asia | 562 | 467 | 95 | 20 |
| Total | 2,578 | 2,110 | 468 | 22 |
| Total revenue by region: |  |  |  |  |
| North America | 4,168 | 2,982 | 1,186 | 40 |
| Latin America | 780 | 612 | 168 | 27 |
| Europe/Africa/CIS | 1,012 | 911 | 101 | 11 |
| Middle East/Asia | 908 | 777 | 131 | 17 |

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| OPERATING INCOME: Millions of dollars | Three Months Ended March 31 2012 | 2011 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $1,036 | $660 | $376 | 57% |
| Drilling and Evaluation | 368 | 230 | 138 | 60 |
| Corporate and other | (381) | (76) | (305) | 401 |
| Total operating income | $1,023 | $814 | $209 | 26% |

*By geographic region:*

| Completion and Production: |  |  |  |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $871 | $614 | $257 | 42% |
| Latin America | 55 | 36 | 19 | 53 |
| Europe/Africa/CIS | 57 | (26) | 83 | 319 |
| Middle East/Asia | 53 | 36 | 17 | 47 |
| Total | 1,036 | 660 | 376 | 57 |
| Drilling and Evaluation: |  |  |  |  |
| North America | 190 | 118 | 72 | 61 |
| Latin America | 67 | 40 | 27 | 68 |
| Europe/Africa/CIS | 40 | 22 | 18 | 82 |
| Middle East/Asia | 71 | 50 | 21 | 42 |
| Total | 368 | 230 | 138 | 60 |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 1,061 | 732 | 329 | 45 |
| Latin America | 122 | 76 | 46 | 61 |
| Europe/Africa/CIS | 97 | (4) | 101 | 2,525 |
| Middle East/Asia | 124 | 86 | 38 | 44 |

The 30% increase in consolidated revenue in the first quarter of 2012 compared to the first quarter of 2011 was primarily attributable to increased activity in North America, as the demand for production enhancement and cementing work continued to rise. On a consolidated basis, all product service lines experienced revenue growth from the first quarter of 2011. Revenue outside of North America was 39% of consolidated revenue in the first quarter of 2012 and 44% of consolidated revenue in the first quarter of 2011.

The 26% increase in consolidated operating income during the first quarter of 2012 compared to the first quarter of 2011 was attributable to capacity additions, higher utilization rates, and a more favorable pricing environment for production enhancement and cementing services associated with the activity growth in the more service intensive, unconventional oil and liquids-rich basins in the United States land market. In the first quarter of 2012, Corporate and other expenses were negatively impacted by a $300 million, pre-tax, loss contingency related to the Macondo well incident. In addition, operating income in the first quarter of 2011 was adversely impacted by a $59 million, pre-tax, charge in Libya to reserve for doubtful accounts receivable and inventory.

Following is a discussion of our results of operations by reportable segment.

*Completion and Production* consolidated revenue increased 35% and North America revenue increased 43% compared to the first quarter of 2011, led by production enhancement and cementing services as higher activity in unconventional basins generally resulted in increased demand for pressure-pumping services. Latin America revenue increased 28%, with Mexico, Brazil, and Venezuela leading higher demand throughout the region, particularly for production enhancement and cementing services. Europe/Africa/CIS revenue increased 14%, led by strong demand for completion tools and cementing services in Nigeria, which was partially offset by lower activity levels in Libya. Middle East/Asia revenue increased 12%, driven by favorable pricing in Oman and higher activity levels in Australia and Indonesia, which were partially offset by lower product sales in China. Revenue outside of North America was 26% of total segment revenue in the first quarter of 2012 and 30% of total segment revenue in the first quarter of 2011.

Completion and Production segment operating income increased 57% compared to the first quarter of 2011, primarily driven by production enhancement and cementing services in the United States land market. The first quarter of 2011 results were negatively impacted by a $36 million, pre-tax, charge in Libya to reserve for doubtful accounts receivable and inventory in the Europe/Africa/CIS region. In North America, operating income grew 42% due to higher activity, improved equipment utilization, and a more favorable pricing environment for production enhancement and cementing services in the United States land market. Latin America operating income increased 53% as a result of higher activity levels in Mexico and increased demand for cementing services and completion tools sales in Brazil. Europe/Africa/CIS operating income increased due to resumption of activities in North Africa, increased demand in Nigeria, and overall improved profitability in Sub-Saharan Africa. The increase in operating income was also attributed to lower operating income in the first quarter of 2011 as a result of the $36 million, pre-tax, charge in Libya to reserve for doubtful accounts receivable and inventory. Middle East /Asia operating income rose 47% due to improved margins in Oman and increased activity levels in Indonesia and Iraq, which more than offset lower completion tools sales in Malaysia and less demand for production enhancement services in Asia.

*Drilling and Evaluation* revenue increased 22% compared to the first quarter of 2011, with all regions experiencing revenue growth. North America revenue grew 30%, primarily due to higher drilling activity and increased wireline and perforating demand. Latin America revenue rose 27%, driven by higher drilling activity in Brazil, Colombia, and Mexico. Europe/Africa/CIS revenue grew 9% due to higher drilling activity in Angola and East Africa, which were partially offset by weather-related disruptions in the North Sea and lower activity levels in Libya. Middle East/Asia revenue increased 20%, primarily due to increased activity levels in Malaysia, Saudi Arabia, and Iraq, which were partially offset by lower drilling activity in Indonesia. Revenue outside of North America was 62% of total segment revenue in the first quarter of 2012 and 64% of total segment revenue in the first quarter of 2011.

Drilling and Evaluation operating income increased 60% compared to the first quarter of 2011, as profitability improved in all regions. The first quarter of 2011 results were negatively impacted by a $23 million, pre-tax, charge in Libya to reserve for doubtful accounts receivable and inventory in the Europe/Africa/CIS region. North America operating income grew 61%, due to increased demand for fluids and higher drilling and wireline activity throughout the region. Latin America operating income increased 68%, driven by strong demand for testing and subsea services in Brazil and higher drilling activity in Colombia, which more than offset higher costs in Mexico. Europe/Africa/CIS operating income improved because the first quarter of 2011 results were negatively impacted by a $23 million, pre-tax, charge in Libya to reserve for doubtful accounts receivable and inventory. Middle East/Asia operating income rose 42%, primarily due to increased demand for fluids in Saudi Arabia and higher wireline services activity in the Middle East.

*Corporate and other* expenses increased $305 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to a $300 million, pre-tax, loss contingency related to the Macondo well incident that was recorded in the first quarter of 2012.

### NONOPERATING ITEMS

*Interest expense, net of interest income* increased $5 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to the issuance of $1.0 billion senior notes in November 2011.

### 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 6 to the condensed consolidated financial statements, Part II, Item 1, “Legal Proceedings—Environmental,” and Part II, Item 1(a), “Risk Factors.”

### 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,” “believes,” “do not believe,” “plans,” “estimates,” “intends,” “expects,” “do not expect,” “anticipates,” “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 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.

## Market risk

As filed, 269 characters.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2011 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2011.

## Controls and procedures

As filed, 1,435 characters.

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, 2012 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 three months ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Apr 24, 2012.
Source: SEC EDGAR, the filing index for accession 0000045012-12-000146. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.