# Halliburton Co: Form 10-Q for the period ended Jun 30, 2013

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2013-07-26
- Accepted by EDGAR: Jul 26, 2013, 15:54 ET
- Period: 2013-06-30
- Accession: 0000045012-13-000242
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501213000242/hal_6302013-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501213000242/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-04-01 to 2013-06-30 | $7.32bn | us-gaap:SalesRevenueNet |
| Revenue | 6 months, 2013-01-01 to 2013-06-30 | $14.29bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2013-04-01 to 2013-06-30 | $1.48bn | us-gaap:CostOfGoodsSold |
| Cost of revenue | 6 months, 2013-01-01 to 2013-06-30 | $2.87bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2013-04-01 to 2013-06-30 | $984.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2013-01-01 to 2013-06-30 | $886.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2013-04-01 to 2013-06-30 | $256.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2013-01-01 to 2013-06-30 | $84.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-04-01 to 2013-06-30 | $644.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2013-01-01 to 2013-06-30 | $626.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-04-01 to 2013-06-30 | $0.69 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2013-01-01 to 2013-06-30 | $0.67 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-04-01 to 2013-06-30 | $0.70 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2013-01-01 to 2013-06-30 | $0.67 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2013-04-01 to 2013-06-30 | 928,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2013-01-01 to 2013-06-30 | 931,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2013-01-01 to 2013-06-30 | $1.47bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2013-01-01 to 2013-06-30 | $1.40bn | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 6 months, 2013-01-01 to 2013-06-30 | $231.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2013-01-01 to 2013-06-30 | $1.01bn | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-06-30 | $1.41bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-06-30 | $12.62bn | us-gaap:AssetsCurrent |
| Total assets | at 2013-06-30 | $27.42bn | us-gaap:Assets |
| Current liabilities | at 2013-06-30 | $4.78bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2013-06-30 | $12.05bn | us-gaap:Liabilities |
| Long-term debt | at 2013-06-30 | $4.82bn | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2013-06-30 | $15.34bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,722 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, 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 services. The segment consists of Halliburton Production Enhancement, Cementing, Completion Tools, Boots & Coots, 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, 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 the United States, Canada, Malaysia, Mexico, Singapore, and the United Kingdom.

With over 75,000 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

Our consolidated revenue for the second quarter of 2013 was $7.3 billion, a quarterly record for us. We also achieved record revenues within our Baroid, Cementing, Completion Tools, Multi-Chem, and Testing and Subsea product service lines. Additionally, during the second quarter of 2013, our international revenue comprised approximately 48% of our total company revenues. The percentage of our revenue that relates to our international operations has been steadily increasing and is representative of our ongoing strategy to grow our international business and balance our geographic mix.

During the first half of 2013, we produced revenue of $14.3 billion and operating income of $886 million. Revenue increased $189 million from the first half of 2012 primarily due to increased activity in all of our international regions and the Gulf of Mexico. This was partially offset by lower activity levels and pricing pressure in the United States land market for drilling and completions product lines. The first half of 2013 results were negatively impacted by a $1.0 billion, pre-tax, reserve related to the Macondo well incident, while the first half of 2012 results were negatively impacted by a $300 million, pre-tax, reserve related to the Macondo well incident.

### Business outlook

We continue to believe in the strength of the long-term fundamentals of our business. Energy demand is expected to increase over the long term driven by economic growth in developing countries despite current underlying downside risks in the industry, such as 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 has experienced an activity shift from natural gas plays to oil and liquids-rich basins due to low natural gas prices resulting from continued strong natural gas production. As a result, operators have been optimizing their budgets by focusing on basins with better economics. We anticipate activity levels will improve over the course of the year through a combination of seasonal recoveries and continued drilling efficiencies. In addition, we are observing a meaningful switch to multi-well pad activity among our customer base. We believe these incremental drilling efficiency gains will provide for higher service intensity.

Outside of North America, revenue and operating income increased by 17% and 13% in the first half of 2013 compared to the first half of 2012. We expect to see gradual activity and pricing improvements in those international markets where we have made strategic investments in capital and technologies. We also believe that new international unconventional oil and natural gas projects may contribute to activity improvements for the remainder of 2013.

We are continuing to execute several key initiatives in 2013. These initiatives include 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

The global financial markets can potentially create 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 second quarter of 2013 with cash and equivalents of $1.4 billion, compared to $2.5 billion at the end of 2012. As of June 30, 2013, approximately $260 million of the $1.4 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. At June 30, 2013, we also held $277 million of investments in fixed income securities compared to $398 million at December 31, 2012. These securities are reflected in "Other current assets" and "Other assets" in our condensed consolidated balance sheets.

### Significant sources and uses of cash

Cash flows from operating activities were $1.5 billion in the first half of 2013.

Capital expenditures were $1.4 billion in the first half of 2013, and were predominantly made in our Production Enhancement, Boots and Coots, Wireline and Perforating, Sperry Drilling, and Cementing product service lines.

We repurchased approximately 24 million shares of our common stock during the first half of 2013 under our share repurchase program at a cost of approximately $1.0 billion, exclusive of repurchases with cash settlements in July 2013.

During the first half of 2013, our primary components of working capital (receivables, inventories, and accounts payable) increased by a net $540 million, primarily due to increased business activity.

We paid $231 million in dividends to our shareholders in the first half of 2013.

In January 2013, we made a $219 million payment under a guarantee we issued for the Barracuda-Caratinga project.

In April 2013, we made a $172 million earn-out payment related to a prior year acquisition due to significantly better than expected operating performance.

During the first half of 2013, we sold $122 million of investment securities, net of investment securities purchased.

*Future uses of cash.* Capital spending for 2013 is expected to be approximately $3.0 billion. The capital expenditures plan for 2013 is primarily directed toward our Production Enhancement, Boots and Coots, Sperry Drilling, Wireline and Perforating, and Cementing product service lines with less capital to be directed toward the North America pressure pumping market.

On July 18, 2013, our board of directors increased the authorization to purchase our common stock by $4.3 billion, to a new total repurchase capacity of $5.0 billion. On July 26, 2013, we commenced an offer to purchase for cash shares of our common stock for an aggregate purchase price of not more than $3.3 billion, at a per share purchase price of not less than $42.50 per share nor greater than $48.50 per share, pursuant to a “modified Dutch auction” procedure. The tender offer will expire at 11:59 p.m., New York City time, on August 22, 2013, unless extended or terminated by us. The tender offer is subject to the satisfaction or waiver of a number of conditions, including that we enter into one or more new debt financing arrangements that collectively result in our receipt of net proceeds that are sufficient to fund a substantial portion of the aggregate purchase price of the shares we intend to purchase in the tender offer.

Subject to Board of Directors approval, we expect to pay dividends representing approximately 15% to 20% of our net income on an annual basis, subject to adjustment for potential one-time items. Currently, our dividend rate is $0.125 per common share, or approximately $116 million per quarter.

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.

### Other factors affecting liquidity

*Guarantee agreements.* In the normal course of business, we have agreements with financial institutions under which an aggregate of approximately $1.9 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of June 30, 2013. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

*Financial position in current market.* As of June 30, 2013, we had $1.4 billion of cash and equivalents, $277 million in fixed income investments, and a total of $3.0 billion of available committed bank credit under our revolving credit facility. Reflecting the growth of our company, in April 2013, we executed an amendment to our revolving credit facility, which increased the capacity from $2.0 billion to $3.0 billion and extended the maturity to 2018. 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, during the remainder of 2013 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 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. Our total outstanding trade receivables in Venezuela at June 30, 2013 were $451 million, which represents approximately 7% of our gross trade receivables at that date. 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. See “Business Environment and Results of Operations – International Operations” for further discussion related to Venezuela.

### BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 80 countries 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 through the life of the field. Our two business segments are the Completion and Production segment and the Drilling and Evaluation segment. The industry we serve is highly competitive with many substantial competitors in each segment. In the first half of 2013, based upon the location of the services provided and products sold, 49% of our consolidated revenue was from the United States. In the first half of 2012, 56% 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. Additionally, our financial performance is impacted by well count in the North America market as a result of improved drilling and completion efficiencies.

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 June 30 2013 | 2012 | Year Ended December 31 2012 |
| --- | ---: | ---: | ---: |
| West Texas Intermediate | $94.09 | $93.73 | $94.15 |
| United Kingdom Brent | 102.74 | 108.92 | 111.60 |
| Average United States Natural Gas Prices (dollars per thousand cubic feet, or Mcf) |  |  |  |
| Henry Hub | $4.01 | $2.26 | $2.81 |

22

The quarterly and yearly average rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:

| Land vs. Offshore United States: | Three Months Ended June 30 2013 2012 | Six Months Ended June 30 2013 2012 |
| --- | ---: | ---: |
| Land | 1,709 1,924 | 1,708 1,936 |
| Offshore (incl. Gulf of Mexico) | 52 46 | 52 44 |
| Total | 1,761 1,970 | 1,760 1,980 |
| Canada: |  |  |
| Land | 152 171 | 344 381 |
| Offshore | 2 2 | 2 2 |
| Total | 154 173 | 346 383 |
| International (excluding Canada): |  |  |
| Land | 974 923 | 966 901 |
| Offshore | 332 306 | 324 308 |
| Total | 1,306 1,229 | 1,290 1,209 |
| Worldwide total | 3,221 3,372 | 3,396 3,572 |
| Land total | 2,835 3,018 | 3,018 3,218 |
| Offshore total | 386 354 | 378 354 |
|  | Three Months Ended June 30 | Six Months Ended June 30 |
| **Oil vs. Natural Gas** | 2013 2012 | 2013 2012 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 1,398 1,372 | 1,365 1,317 |
| Natural gas | 363 598 | 395 663 |
| Total | 1,761 1,970 | 1,760 1,980 |
| Canada: |  |  |
| Oil | 95 118 | 247 271 |
| Natural gas | 59 55 | 99 112 |
| Total | 154 173 | 346 383 |
| International (excluding Canada): |  |  |
| Oil | 1,026 980 | 1,023 961 |
| Natural gas | 280 249 | 267 248 |
| Total | 1,306 1,229 | 1,290 1,209 |
| Worldwide total | 3,221 3,372 | 3,396 3,572 |
| Oil total | 2,519 2,470 | 2,635 2,549 |
| Natural gas total | 702 902 | 761 1,023 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended June 30 2013 | 2012 | Six Months Ended June 30 2013 | 2012 |
| --- | ---: | ---: | ---: | ---: |
| Horizontal | 1,088 | 1,169 | 1,108 | 1,170 |
| Vertical | 455 | 569 | 448 | 585 |
| Directional | 218 | 232 | 204 | 225 |
| Total | 1,761 | 1,970 | 1,760 | 1,980 |

23

Our customers’ cash flows, in most 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, while the opposite is true for higher oil and natural gas prices.

WTI oil spot prices fluctuated throughout 2012 between a low of $78 per barrel to a high of $109 per barrel. Brent oil spot prices fluctuated between a low of $89 per barrel to a high of $128 per barrel during this same period. During the first half of 2013, WTI oil spot prices ranged between $87 per barrel and $98 per barrel, while Brent oil spot prices ranged between $97 per barrel and $119 per barrel. Oil prices were somewhat stable during the first half of 2013 as uncertainty surrounding the global economic outlook negatively impacted demand and continued strong oil production in North America helped to counter volatility in the Middle East and North Africa. Since June 2013, a number of factors have contributed to significant decreases in oil supply resulting in significant increases in the WTI and Brent oil spot prices. These factors include mounting unrest and attacks in Libya, Nigeria, and Iraq, turmoil in Egypt, and production disruptions in North America caused by refinery maintenance and flooding in the Alberta oil sands. The outlook for world petroleum demand for the remainder of 2013 appears mixed, with the International Energy Agency’s July 2013 “Oil Market Report” forecasting 2013 demand to increase approximately 1% over 2012 levels.

Natural gas prices in the United States have increased approximately 54% from the first half of 2012 due to an increase in storage withdrawals due to colder temperatures in the early part of 2013, as well as higher natural gas demand for industrial purposes. The United States Energy Information Administration's July 2013 “Short Term Energy Outlook” forecasts an increase in natural gas consumption in the industrial sector and for residential and commercial space heating, but also forecasts a decline in natural gas demand for electricity generation. We foresee significant natural gas price constraints in the near-term as natural gas competes as a fuel source in the power generation market.

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

Volatility in oil and natural gas prices can impact our customers’ drilling and production activities, particularly in North America. For the first half of 2013, the average natural gas directed rig count fell by 281 rigs, or 36%, from the first half of 2012. The curtailment of natural gas drilling activity along with an influx of stimulation equipment into the industry have resulted in overcapacity and pricing pressure for hydraulic fracturing services, which we expect to persist for the remainder of 2013. Despite a relatively flat rig count in North America as compared to the first half of 2012, drilling efficiencies and the trend toward multi-well pads are driving a more robust well count. Additionally, we are seeing operators, in some cases, increasing the number of stages on horizontal wells. We believe that the resulting increase in the well and stage counts could absorb a meaningful percentage of the excess hydraulic fracturing horsepower and help drive service intensity across our product service lines. In the long run, we believe the shift to unconventional oil and liquids-rich basins in North America will also continue to drive increased service intensity and will require advanced fluid chemistries and other technologies which will ultimately benefit our operations.

In the Gulf of Mexico, improvements in the performance of many of our product service lines in this region was due to a 18% increase in the offshore rig count from the first half of 2012, in addition to the efficiencies and integrated solutions we offer that save our customers time and enhance productivity. We anticipate strong revenue and profit growth in the Gulf of Mexico for the remainder of the year as additional deepwater rigs arrive and more rigs move to the completions cycle. Over the long term, continued growth in the Gulf of Mexico is dependent on, among other things, governmental approvals for permits, our customers' actions, and new deepwater rigs entering the market.

### International operations

The industry experienced steady volume increases during 2012, which have led to meaningful absorption of equipment supply, and we are now seeing opportunities for price improvements in select geographies. We anticipate that activity increases will remain steady as we believe that operator spending outlook will be impacted by ongoing macroeconomic concerns. We also believe that international unconventional oil and natural gas and deepwater projects will contribute to activity improvements over the long term, and we plan to leverage our extensive experience in North America to optimize these opportunities. During the first half of 2013, revenue outside of North America increased 17% and operating income outside of North America increased 13% from the first half of 2012.

We will continue to focus on expanding our global portfolio in deepwater, mature fields, and unconventionals and expect stronger revenues and margins during the second half of 2013. Consistent with our long-term strategy to grow our operations outside of North America, we also expect to continue to invest in capital equipment for our international operations.

*Venezuela.* As of June 30, 2013, our total net investment in Venezuela was approximately $357 million, including net monetary assets of $91 million denominated in Bolívar Fuerte. Our total outstanding trade receivables in Venezuela were $451 million, or approximately 7% of our gross trade receivables, as of June 30, 2013, compared to $491 million, or approximately 9% of our gross trade receivables, as of December 31, 2012. We continue to see delays in receiving payment on our receivables from our primary customer in Venezuela. In addition, at June 30, 2013 we had $190 million of surety bond guarantees outstanding relating to our Venezuelan operations.

In February 2013, the Venezuelan government announced a devaluation of the Bolívar Fuerte, from the preexisting exchange rate of 4.3 Bolívar Fuertes per United States dollar to 6.3 Bolívar Fuertes per United States dollar, resulting in us incurring a foreign currency loss. However, the net foreign currency impact of Bolívar Fuertes activity in the first quarter of 2013 was not material, though further devaluation of the Bolívar Fuerte could impact our operations. For additional information, see Part I, Item 1(a), “Risk Factors” in our 2012 Annual Report on Form 10-K.

### Initiatives

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

- focusing on 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 are deploying 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;
- growing our international revenues and margins through achieving a better geographical balance in our business going forward, as well as improving our North America margins;
- continuing to seek ways to be one of the most cost efficient service providers in the industry by maintaining capital discipline and using our scale and breadth of operations; and
- expanding our business with national oil companies.

### RESULTS OF OPERATIONS IN 2013 COMPARED TO 2012

### Three Months Ended June 30, 2013 Compared with Three Months Ended June 30, 2012

| REVENUE: Millions of dollars | Three Months Ended June 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,363 | $4,460 | $(97) | (2)% |
| Drilling and Evaluation | 2,954 | 2,774 | 180 | 6 |
| Total revenue | $7,317 | $7,234 | $83 | 1% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $2,876 | $3,167 | $(291) | (9)% |
| Latin America | 391 | 340 | 51 | 15 |
| Europe/Africa/CIS | 576 | 551 | 25 | 5 |
| Middle East/Asia | 520 | 402 | 118 | 29 |
| Total | 4,363 | 4,460 | (97) | (2) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 926 | 973 | (47) | (5) |
| Latin America | 553 | 539 | 14 | 3 |
| Europe/Africa/CIS | 723 | 605 | 118 | 20 |
| Middle East/Asia | 752 | 657 | 95 | 14 |
| Total | 2,954 | 2,774 | 180 | 6 |
| Total revenue by region: |  |  |  |  |
| North America | 3,802 | 4,140 | (338) | (8) |
| Latin America | 944 | 879 | 65 | 7 |
| Europe/Africa/CIS | 1,299 | 1,156 | 143 | 12 |
| Middle East/Asia | 1,272 | 1,059 | 213 | 20 |

| OPERATING INCOME: Millions of dollars | Three Months Ended June 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $732 | $914 | $(182) | (20)% |
| Drilling and Evaluation | 415 | 393 | 22 | 6 |
| Corporate and other | (163) | (106) | (57) | 54 |
| Total operating income | $984 | $1,201 | $(217) | (18)% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $517 | $691 | $(174) | (25)% |
| Latin America | 48 | 54 | (6) | (11) |
| Europe/Africa/CIS | 74 | 95 | (21) | (22) |
| Middle East/Asia | 93 | 74 | 19 | 26 |
| Total | 732 | 914 | (182) | (20) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 149 | 166 | (17) | (10) |
| Latin America | 53 | 84 | (31) | (37) |
| Europe/Africa/CIS | 87 | 64 | 23 | 36 |
| Middle East/Asia | 126 | 79 | 47 | 59 |
| Total | 415 | 393 | 22 | 6 |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 666 | 857 | (191) | (22) |
| Latin America | 101 | 138 | (37) | (27) |
| Europe/Africa/CIS | 161 | 159 | 2 | 1 |
| Middle East/Asia | 219 | 153 | 66 | 43 |

Revenue was relatively flat when comparing the second quarter of 2013 to the second quarter of 2012. Our international regions experienced increases in revenue, with Europe/Africa and Middle East/Asia setting revenue records for those regions. These increases were offset by activity decreases in North America. On a consolidated basis, a majority of our product service lines experienced revenue growth from the second quarter of 2012. Revenue outside of North America was 48% of consolidated revenue in the second quarter of 2013 and 43% of consolidated revenue in the second quarter of 2012.

The 18% decrease in consolidated operating income during the second quarter of 2013 compared to the second quarter of 2012 was primarily due to production enhancement services in the United States land market which experienced continued pricing pressure and a decline in activity.

*Completion and Production* consolidated revenue in the second quarter of 2013 fell 2% compared to the second quarter of 2012 due to reduced activity in North America. North America revenue decreased 9% compared to the second quarter of 2012 as a result of continued pricing pressure in production enhancement services in the United States. Latin America revenue improved 15% due to increased completion tools sales in Brazil and increased activity for both production enhancement in Argentina and Boots & Coots in Mexico. Europe/Africa/CIS revenue was up 5%, driven by increased production enhancement activity in Norway and Russia and increased cementing activities in Norway and Nigeria, partially offset by a decrease in pressure pumping activities in Angola. Middle East/Asia revenue grew 29%, primarily due to higher activity levels in Malaysia, Saudi Arabia, and Australia, partially offset by lower completion tools sales in Indonesia. Revenue outside of North America was 34% of total segment revenue in the second quarter of 2013 and 29% of total segment revenue in the second quarter of 2012.

Completion and Production operating income declined by 20%, and North America operating income decreased 25% compared to the second quarter of 2012 due to price erosion and decline in activity for production enhancement services in the United States land market. Latin America operating income declined by 11% due to decreased activity for production enhancement services in Mexico, which more than offset the improved profitability of production enhancements services in Argentina and increased completion tools sales in Brazil. Europe/Africa/CIS operating income fell 22% due to increased cementing costs in Norway along with decreases in Boots & Coots activity in Angola and Kazakhstan, which more than offset increased cementing activity in Nigeria. Middle East/Asia operating income grew 26% led by an increase in demand for completion tools in Malaysia and increased production enhancement activity in Australia, Malaysia, and Iraq, which were partially offset by increased Boots & Coots related costs in Saudi Arabia.

*Drilling and Evaluation* revenue was up 6% compared to the second quarter of 2012, with revenue growth across a majority of our product service lines. North America revenue decreased 5%, as drilling and wireline activities declined in United States land market, which more than offset increased demand in drilling services in Canada and the Gulf of Mexico. Latin America revenue improved 3%, driven by higher drilling activity in Brazil and Mexico, which was partially offset by lower drilling activities in Colombia. Europe/Africa/CIS revenue increased 20% due to higher drilling activity in Norway, Azerbaijan, and Russia, along with increased fluid and wireline services in Angola. These increases were partially offset by lower activity levels in Algeria and Tanzania. Middle East/Asia revenue grew 14%, led by increased activity levels in Saudi Arabia and Indonesia, increased logging services in Malaysia, and increased drilling services in China and Kuwait. These increases were partially offset by the decrease of direct sales in China. Revenue outside of North America was 69% of total segment revenue in the second quarter of 2013 and 65% of total segment revenue in the second quarter of 2012.

Drilling and Evaluation operating income improved 6% compared to the second quarter of 2012, as we experienced strong growth in the eastern hemisphere which more than offset a reduction of activity in North America. North America operating income decreased by 10% as a result of lower demands of our drilling services in the United States land market. Latin America operating income declined 37% as a result of lower drilling activity in Columbia and increased costs in Brazil, which more than offset increased drilling activity in Mexico. Europe/Africa/CIS operating income was up by 36% as a result of an increased demand for fluids in Norway and Angola, increased drilling services in Azerbaijan, and increased testing activity in Equatorial Guinea. These increases more than offset activity declines in Tanzania. Middle East/Asia operating income grew 59%, driven by drilling services demand increases in China and additional wireline work in Malaysia, which more than offset lower direct sales in China.

*Corporate and other* in 2013 includes a $55 million charitable contribution made to the National Fish and Wildlife Foundation, reflecting our commitment to making a positive environmental impact and a strong commitment to our local communities.

### NONOPERATING ITEMS

*Effective tax rate*. Our effective tax rate was 28.4% for the three months ended June 30, 2013 and 32.3% for the three months ended June 30, 2012. The effective tax rate on continuing operations for the three months ended June 30, 2013 was positively impacted by lower tax rates in certain foreign jurisdictions, as we continue to reposition our technology, supply chain, and manufacturing infrastructure to more effectively serve our international customers.

### Six Months Ended June 30, 2013 Compared with Six Months Ended June 30, 2012

| REVENUE: Millions of dollars | Six Months Ended June 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $8,463 | $8,750 | $(287) | (3)% |
| Drilling and Evaluation | 5,828 | 5,352 | 476 | 9 |
| Total revenue | $14,291 | $14,102 | $189 | 1% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $5,621 | $6,349 | $(728) | (11)% |
| Latin America | 746 | 646 | 100 | 15 |
| Europe/Africa/CIS | 1,108 | 1,007 | 101 | 10 |
| Middle East/Asia | 988 | 748 | 240 | 32 |
| Total | 8,463 | 8,750 | (287) | (3) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 1,887 | 1,959 | (72) | (4) |
| Latin America | 1,143 | 1,013 | 130 | 13 |
| Europe/Africa/CIS | 1,378 | 1,161 | 217 | 19 |
| Middle East/Asia | 1,420 | 1,219 | 201 | 16 |
| Total | 5,828 | 5,352 | 476 | 9 |
| Total revenue by region: |  |  |  |  |
| North America | 7,508 | 8,308 | (800) | (10) |
| Latin America | 1,889 | 1,659 | 230 | 14 |
| Europe/Africa/CIS | 2,486 | 2,168 | 318 | 15 |
| Middle East/Asia | 2,408 | 1,967 | 441 | 22 |

27

| OPERATING INCOME: Millions of dollars | Six Months Ended June 30 2013 | 2012 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $1,347 | $1,950 | $(603) | (31)% |
| Drilling and Evaluation | 822 | 761 | 61 | 8 |
| Corporate and other | (1,283) | (487) | (796) | 163 |
| Total operating income | $886 | $2,224 | $(1,338) | (60)% |
| By geographic region: |  |  |  |  |
| Completion and Production: |  |  |  |  |
| North America | $949 | $1,562 | $(613) | (39)% |
| Latin America | 76 | 109 | (33) | (30) |
| Europe/Africa/CIS | 138 | 152 | (14) | (9) |
| Middle East/Asia | 184 | 127 | 57 | 45 |
| Total | 1,347 | 1,950 | (603) | (31) |
| Drilling and Evaluation: |  |  |  |  |
| North America | 322 | 356 | (34) | (10) |
| Latin America | 134 | 151 | (17) | (11) |
| Europe/Africa/CIS | 144 | 104 | 40 | 38 |
| Middle East/Asia | 222 | 150 | 72 | 48 |
| Total | 822 | 761 | 61 | 8 |
| Total operating income by region |  |  |  |  |
| (excluding Corporate and other): |  |  |  |  |
| North America | 1,271 | 1,918 | (647) | (34) |
| Latin America | 210 | 260 | (50) | (19) |
| Europe/Africa/CIS | 282 | 256 | 26 | 10 |
| Middle East/Asia | 406 | 277 | 129 | 47 |

Consolidated revenue in the first half of 2013 was flat compared to the first half of 2012, as activity growth across all international regions was partially offset by pricing pressure and lower demand in North America, particularly for production enhancement services. Revenue outside of North America was 47% of consolidated revenue in the first half of 2013 and 41% of consolidated revenue in the first half of 2012.

The $1.3 billion decrease in consolidated operating income in the first half of 2013 compared to the first half of 2012 was primarily due to a $1.0 billion, pre-tax, loss contingency related to the Macondo well incident that was recorded in the first quarter of 2013, compared to a $300 million, pre-tax, Macondo-related loss contingency recorded in the first quarter of 2012. Additionally, we experienced reduced activity levels and pricing constraints in North America, which were partially offset by strong results in our international regions.

*Completion and Production* revenue decreased 3% from the first half of 2012 due to reduced stimulation and cementing demand in North America, which was partially offset by strong international revenue. North America revenue decreased 11% from the first half of 2012 as a result of the downturn in the United States hydraulic fracturing market. Latin America revenue increased 15% due to increased completion tools sales in Brazil and higher unconventional stimulation activity in Mexico. Europe/Africa/CIS revenue increased 10%, driven by higher cementing and stimulation activity in Norway and Russia and increased completion tools sales in the United Kingdom and Angola. Middle East/Asia revenue increased 32% due to higher activity for all product service lines in Australia and Saudi Arabia and increased completion tools sales in Malaysia. Revenue outside of North America was 34% of total segment revenue in the first half of 2013 and 27% of total segment revenue in the first half of 2012.

Completion and Production operating income decreased 31% compared to the first half of 2012, as pricing pressure and reduced operator activities continued to impact production enhancement margins in North America. North America operating income decreased 39% as a result of reduced profitability for stimulation activities in the United States land market. Latin America operating income decreased 30% due to increased costs for stimulation services in Mexico and cementing services throughout the region. Europe/Africa/CIS operating income decreased 9%, primarily due to higher costs for Boots & Coots in Africa, Kazakhstan, and Russia, which were partially offset by increased completion tools sales in Angola and higher demand for cementing services in Nigeria. Middle East/Asia operating income increased 45% due to higher activity across most product service lines in Australia, increased completion tools sales in Malaysia, higher cementing activity in Indonesia, and improved profitability in Iraq.

*Drilling and Evaluation* revenue increased 9% compared to the first half of 2012 on the strength of international drilling activity. North America revenue decreased 4%, as drilling and wireline activity declines in the United States land market were partially offset by higher drilling activity in the Gulf of Mexico and Canada. Latin America revenue increased 13% as a result of higher drilling and fluids demand in Mexico and Brazil. Europe/Africa/CIS revenue increased 19%, primarily due to increased demand for fluids in Norway and Angola and higher drilling activity in Azerbaijan, Russia, and Norway, which were partially offset by reduced overall activity in Algeria and Tanzania. Middle East/Asia revenue increased 16% due to higher activity levels in Saudi Arabia and Indonesia, increased wireline demand in Malaysia, and improved fluid sales throughout most of the region. Revenue outside of North America was 68% of total segment revenue in the first half of 2013 and 63% of total segment revenue in the first half of 2012.

Drilling and Evaluation operating income increased 8% compared to the first half of 2012, as strong growth in our international regions more than offset lower profitability in North America. North America operating income decreased 10%, as lower demand for drilling and wireline and perforating services in the United States land market more than offset higher drilling activity in the Gulf of Mexico. Latin America operating income decreased 11% due to higher costs in Brazil and Argentina and lower drilling activity in Colombia, which more than offset higher drilling activity in Mexico. Europe/Africa/CIS operating income increased 38%, as higher demand for drilling services in Azerbaijan and Russia and increased fluid sales in Norway and Angola more than offset lower drilling and wireline activity in Tanzania. Middle East/Asia operating income increased 48% as a result of higher demand for drilling services in China, Southeast Asia, and Kuwait, increased demand and lower costs for wireline services in Malaysia, and improved profitability in Iraq.

*Corporate and other* expenses were $1.3 billion in the first half of 2013 compared to $487 million in the first half of 2012. The significant increase was due to a $1.0 billion, pre-tax, Macondo-related loss contingency that was recorded in the first quarter of 2013, compared to a $300 million, pre-tax, Macondo-related loss contingency recorded in the first quarter of 2012. Also, a $55 million charitable contribution was made to the National Fish and Wildlife Foundation, reflecting our commitment to making a positive environmental impact and a strong commitment to our local communities.

### NONOPERATING ITEMS

*Effective tax rate*. Our effective tax rate was 11.7% for the six months ended June 30, 2013 and 32.3% for the six months ended June 30, 2012. The effective tax rate on continuing operations for the six months ended June 30, 2013 was positively impacted by federal tax benefits of approximately $50 million due to the reinstatement of certain tax benefits and credits related to the enactment during the first quarter of the American Taxpayer Relief Act of 2012. However, our effective tax rate experienced an unusual alteration when we recorded a $1.0 billion, pre-tax, loss contingency related to the Macondo well incident in the first quarter of 2013. Additionally, our effective tax rate was impacted by lower tax rates in certain foreign jurisdictions, as we continue to reposition our technology, supply chain, and manufacturing infrastructure to more effectively serve our international customers.

### 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” 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 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.

## 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 2012 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2012.

## Controls and procedures

As filed, 1,433 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 June 30, 2013 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 June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Jul 26, 2013.
Source: SEC EDGAR, the filing index for accession 0000045012-13-000242. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.