# Halliburton Co: Form 10-Q for the period ended Sep 30, 2017

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2017-10-27
- Accepted by EDGAR: Oct 27, 2017, 13:29 ET
- Period: 2017-09-30
- Accession: 0000045012-17-000218
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501217000218/hal_09302017-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501217000218/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2017-07-01 to 2017-09-30 | $1.07bn | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2017-01-01 to 2017-09-30 | $3.01bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2017-07-01 to 2017-09-30 | $634.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2017-01-01 to 2017-09-30 | $983.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2017-07-01 to 2017-09-30 | $135.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2017-01-01 to 2017-09-30 | $81.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-07-01 to 2017-09-30 | $365.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-01-01 to 2017-09-30 | $361.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-07-01 to 2017-09-30 | $0.42 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2017-01-01 to 2017-09-30 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-07-01 to 2017-09-30 | $0.42 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2017-01-01 to 2017-09-30 | $0.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-07-01 to 2017-09-30 | 873,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2017-01-01 to 2017-09-30 | 872,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2017-01-01 to 2017-09-30 | $1.46bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2017-01-01 to 2017-09-30 | $934.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2017-01-01 to 2017-09-30 | $469.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2017-09-30 | $1.90bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-09-30 | $10.14bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-09-30 | $25.79bn | us-gaap:Assets |
| Current liabilities | at 2017-09-30 | $4.60bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-09-30 | $16.54bn | us-gaap:Liabilities |
| Long-term debt | at 2017-09-30 | $10.42bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2017-09-30 | $515.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2017-09-30 | $9.22bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,996 characters.

### 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 over 50,000 employees, we operate in approximately 70 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

### Financial results

Our business continued to strengthen during the third quarter of 2017, marked by increases compared to the second quarter of 2017 in the average North American land rig count and improved profitability in our international business. Our North American business continued to improve in the third quarter of 2017, with revenue growth of 14%, compared to the second quarter of 2017, significantly outperforming the average United States land rig count increase of 6%. While the international markets have been slower to recover and continue to face pricing pressure as customers defer new projects and focus on lowering costs, we are committed to making this market sustainable. Cost cutting remains a major theme in our international business and the use of technology to lower our customer costs is important. Our product service lines continue to deliver technology driven value propositions to help our customers increase production and lower costs.

We generated total company revenue of $5.4 billion during the third quarter of 2017, a 42% increase from the $3.8 billion of revenue generated in the third quarter of 2016. This increase resulted from improved activity, utilization, and pricing associated with pressure pumping services in the United States land market, as well as contributions from our recent artificial lift acquisition in North America. We reported operating income of $634 million in the third quarter of 2017, compared to operating income of $128 million in the third quarter of 2016. Our operating results are benefiting from the structural global cost savings initiatives implemented over the past few years to address challenging market conditions.

During the first quarter, we made the decision to bring back cold-stacked pressure pumping equipment more rapidly than originally planned because of customer demand and to maintain market share while capturing leading edge pricing, and we have successfully executed this reactivation plan. The reactivated equipment has enhanced our overall margins during the first nine months of 2017. North America experienced a significant margin improvement from the first to third quarter of 2017 as a result of activity and pricing increases. We are diligently working towards optimizing margins and reaching targets we have set for our organization, which we believe are achievable through competitive pricing, improved equipment utilization and reducing our cost structure.

### Business outlook

While 2016 was challenging as we navigated through the historic industry downturn, we believe our financial results in 2017 reflect our successful execution in a difficult environment and that our strategy has positioned us for any challenges and opportunities ahead. Commodity prices and the North America rig count have improved substantially from first half 2016 lows, and despite a range bound commodity price environment in 2017, we are benefiting from our improved market share, delivery platform and cost containment strategies.

In North America, improved commodity prices and rig counts from 2016 lows have resulted in a rapidly recovering market through the third quarter of 2017, particularly in United States unconventionals. At the current North American rig count, we are drilling approximately the same footage as the peak of 2014, along with significantly increased completions intensity. As rig count stabilizes, our customers focus on efficiencies, optimization and production. We are continuing to collaborate and engineer solutions to maximize asset value for our customers and will continue to focus on increasing equipment utilization, managing costs and expanding our surface efficiency model. Additionally, we gained significant North America market share through the downturn by demonstrating to our customers the benefits of our service quality and technology. We have been utilizing this increased market share to drive margin improvement. The historically high level of market share we built in the downturn gives us the ability to focus our work with the most efficient customers, and as such, we continued to execute our strategy of high grading the profitability of our portfolio with customers that value our services. During the third quarter of 2017, we acquired Summit ESP which was an important step in building out our production oriented business lines.

While the international markets were more resilient than North America through most of the downturn, particularly in the Eastern Hemisphere, low commodity prices have stressed customer budgets and impacted economics across deepwater and mature fields. As a result, our international business is experiencing activity reductions and pricing pressure in 2017 when compared to 2016. While we are working with our customers to improve project economics through technology and improved operating efficiency, any activity improvements for the remainder of 2017 will likely be offset by continued pricing pressure. However, we are now in the third year of significant underspending in the international markets. This implies that production declines will likely accelerate in the medium term as the backlog of new projects are completed and additional projects are not coming behind them. These eventual declines should help support higher commodity prices and increased international E&P spending.

During the first nine months of 2017, we had $934 million of capital expenditures, an increase of 49% from the first nine months of 2016. We plan to continue adjusting capital spending during 2017 and into 2018 to align with market conditions. We have successfully executed our deployment strategy to reactivate our cold-stacked pressure pumping equipment to respond to customer demand and converting our hydraulic fracturing fleet to Q10 pumps to support our surface efficiency model. We remain committed to generating industry-leading returns and continue to be focused on achieving leading edge pricing, driving better utilization and continuous cost control.

We intend to continue to strengthen our product service lines through a combination of organic growth, investment and selective acquisitions. We are continuing to execute the following strategies in 2017:

\- directing capital and resources into strategic growth markets, including unconventional plays and mature fields;

- 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;
- continuing to seek 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

\- collaborating and engineering solutions to maximize asset value for our customers.

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. We closed the third quarter of 2017 at $1.9 billion of cash and equivalents. We also have $3.0 billion available under our revolving credit facility which, combined with our cash balance, we believe 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.”

### LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2017, we had $1.9 billion of cash and equivalents, compared to $4.0 billion at December 31, 2016. Additionally, we held $105 million of investments in fixed income securities at September 30, 2017, compared to $92 million at December 31, 2016. These securities are reflected in "Other current assets" and "Other assets" in our condensed consolidated balance sheets. Approximately $1.6 billion of our total cash position as of September 30, 2017 was held by our foreign subsidiaries, a substantial portion of which is available to be repatriated into the United States to fund our U.S. operations or for general corporate purposes, with a portion subject to certain country-specific restrictions. We have provided for U.S. federal income taxes on cumulative undistributed foreign earnings where we have determined that such earnings are not indefinitely reinvested.

### Significant sources and uses of cash

#### Sources of cash:

\- Cash flows from operating activities were $1.5 billion during the first nine months of 2017.

\- We received a United States tax refund in the amount of approximately $478 million in the third quarter of 2017, primarily related to the carryback of our net operating losses recognized in 2016.

#### Uses of cash:

\- We early redeemed $1.4 billion of senior notes during the first quarter of 2017, which resulted in a payment of approximately $1.5 billion, inclusive of the redemption premium. We also repaid $45 million of senior notes that matured during the second quarter of 2017.

\- Capital expenditures were $934 million in the first nine months of 2017, and were predominantly made in our Production Enhancement, Sperry Drilling, Production Solutions, Baroid, and Wireline and Perforating product service lines.

\- We paid approximately $630 million in the third quarter of 2017 to acquire Summit ESP, Ingrain Inc., and Optimization Petroleum Technology. The additions of these three businesses strengthen our artificial lift, wireline, and Landmark portfolios for our global customers.

\- During the first nine months of 2017, working capital (receivables, inventories and accounts payable) increased by a net $502 million, primarily due to increased business activity.

\- We paid $469 million in dividends to our shareholders during the first nine months of 2017.

\- We made the final installment settlement payment related to the Macondo well incident in the amount of $335 million, as well as our third and final legal fees payment of $33 million during the first nine months of 2017.

\- We paid $54 million in the second quarter of 2017 to settle a class action lawsuit and $29 million in the third quarter of 2017 for a resolution of an SEC investigation of certain past matters related to our operations in Angola and Iraq. See Note 5 to the condensed consolidated financial statements for further information.

### Future sources and uses of cash

Capital spending for the full year 2017 is currently expected to be approximately $1.3 billion to $1.4 billion.

Currently, our quarterly dividend rate is $0.18 per common share, or approximately $156 million. Subject to the approval of our Board of Directors, our intention is to continue paying dividends at our current rate.

Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately $5.7 billion remains authorized for repurchases as of September 30, 2017 and may be used for open market and other share purchases. There were no repurchases made under the program during the nine months ended September 30, 2017.

### Other factors affecting liquidity

*Financial position in current market.* As of September 30, 2017, we had $1.9 billion of cash and equivalents, $105 million in fixed income investments, and $3.0 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. We believe our cash on hand, cash flows generated from operations, and our available credit facility will provide sufficient liquidity to address the challenges and opportunities of the current market and manage our global cash needs for the remainder of 2017, 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 $2.0 billion of letters of credit, bank guarantees or surety bonds were outstanding as of September 30, 2017. 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 BBB+ 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. See Note 2 to the condensed consolidated financial statements for further discussion related to receivables from our primary customer in Venezuela.

### BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in approximately 70 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 nine months of 2017, based upon the location of the services provided and products sold, 53% of our consolidated revenue was from the United States, compared to 40% of consolidated revenue from the United States in the first nine months of 2016. 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, 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 loss 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, global oil supply, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling activity. Lower oil and natural gas prices usually translate into lower exploration and production budgets. Our financial performance is significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the tables below, and well count in North America.

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 September 30 2017 | 2016 | Year Ended December 31 2016 |
| --- | ---: | ---: | ---: |
| Oil price - WTI (1) | $48.36 | $44.84 | $43.14 |
| Oil price - Brent (1) | 52.31 | 45.79 | 43.55 |
| Natural gas price - Henry Hub (2) | 3.15 | 2.88 | 2.52 |
| (1) Oil price measured in dollars per barrel (2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu |  |  |  |

17

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

| Land vs. Offshore United States: | Three Months Ended September 30 2017 2016 | Nine Months Ended September 30 2017 2016 |
| --- | ---: | ---: |
| Land | 927 461 | 841 459 |
| Offshore (incl. Gulf of Mexico) | 19 18 | 20 23 |
| Total | 946 479 | 861 482 |
| Canada: |  |  |
| Land | 207 119 | 206 110 |
| Offshore | 1 2 | 1 2 |
| Total | 208 121 | 207 112 |
| International (excluding Canada): |  |  |
| Land | 749 711 | 748 740 |
| Offshore | 199 225 | 200 225 |
| Total | 948 936 | 948 965 |
| Worldwide total | 2,102 1,536 | 2,016 1,559 |
| Land total | 1,883 1,291 | 1,795 1,309 |
| Offshore total | 219 245 | 221 250 |
|  | Three Months Ended September 30 | Nine Months Ended September 30 |
| **Oil vs. Natural Gas** | 2017 2016 | 2017 2016 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 760 391 | 691 388 |
| Natural gas | 186 88 | 170 94 |
| Total | 946 479 | 861 482 |
| Canada: |  |  |
| Oil | 115 64 | 110 54 |
| Natural gas | 93 57 | 97 58 |
| Total | 208 121 | 207 112 |
| International (excluding Canada): |  |  |
| Oil | 731 709 | 729 733 |
| Natural gas | 217 227 | 219 232 |
| Total | 948 936 | 948 965 |
| Worldwide total | 2,102 1,536 | 2,016 1,559 |
| Oil total | 1,606 1,164 | 1,530 1,175 |
| Natural gas total | 496 372 | 486 384 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended September 30 2017 | 2016 | Nine Months Ended September 30 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Horizontal | 799 | 373 | 720 | 376 |
| Vertical | 70 | 61 | 72 | 58 |
| Directional | 77 | 45 | 69 | 48 |
| Total | 946 | 479 | 861 | 482 |

18

Crude oil prices have been extremely volatile during 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. Brent crude oil spot prices declined from a high of $115 per barrel in June 2014 to $26 per barrel in January 2016. Since the low point experienced in early 2016, oil prices have increased and become range bound in 2017. WTI oil spot prices ranged from a low of $42 per barrel in June 2017 to a high of $54 per barrel in February 2017. Brent crude oil spot prices ranged from a low of $44 in June 2017 to a high of $60 in September 2017. The average WTI and Brent oil spot prices during the third quarter of 2017 were $48 and $52, respectively.

Crude prices rose in the third quarter of 2017 due to increasing expectations for global economic and oil demand growth and falling Organization of the Petroleum Exporting Countries (OPEC) production, which led to declining global oil inventories. Strengthening global economic conditions and geopolitical factors are the main drivers for the expected rise in oil demand in 2018. The United States Energy Information Administration (EIA) forecasts the average 2018 Brent crude oil price to be $54 per barrel in their October 2017 "Short Term Energy Outlook," while WTI prices are projected to average about $3.50 less per barrel. Crude oil production in the United States is now projected to average 9.2 million barrels per day in 2017, while 2018 projections of 9.9 million barrels per day would mark the highest annual average in United States history. The International Energy Agency's (IEA) October 2017 "Oil Market Report" forecasts the 2017 global demand to average approximately 98 million barrels per day, which is up 2% from 2016, with 2018 forecasts of 99 million barrels per day.

The average Henry Hub natural gas spot price in the United States was $2.98 per MMBtu in September 2017, which was flat from June 2017, due to natural gas production keeping pace with consumption and demand for exports. However, natural gas prices have risen 72% from a low of $1.73 in March 2016. The EIA October 2017 “Short Term Energy Outlook” expects growth in natural gas exports and domestic natural gas consumption to cause a rise in natural gas prices to a projected EIA average spot price of $3.19 per MMBtu in 2018.

### North America operations

The United States land rig count continued its increase in the third quarter of 2017, with a 6% improvement over the second quarter of 2017 and 101% improvement over the third quarter of 2016. North America oil-directed rig count increased 420 rigs, or 92%, in the third quarter of 2017 as compared to the third quarter of 2016, while the natural gas-directed rig count in North America increased 134 rigs, or 92%, during the same period. As a result of the recent uptick in activity and the structural changes to our delivery platform we made over the past few years, after recording operating losses in North America in the first three quarters of 2016, we returned to operating profitability in the fourth quarter of 2016 with continued improvements throughout 2017. Rig count has stabilized during the third quarter of 2017, with customers searching for improved production with an increased focus on efficiency and optimization of wells.

In the Gulf of Mexico, the average offshore rig count for the third quarter of 2017 was down two rigs, or 10%, compared to the second quarter of 2017. The impacts of Hurricane Harvey led customers in the Gulf of Mexico and Eagle Ford to suspend activity temporarily in the third quarter of 2017. Low commodity prices have stressed budgets and have impacted economics across the deepwater market, negatively impacting activity and pricing. These headwinds still persist today, and we believe there will continue to be challenges in 2017 to deepwater project economics. Activity in the Gulf of Mexico is dependent on governmental approvals for permits, our customers' actions, and the entry and exit of deepwater rigs in the market.

### International operations

The average international rig count for the third quarter of 2017 was essentially flat compared to both the second quarter of 2017 and the third quarter of 2016. Lower sustained crude oil prices have caused many of our customers to reduce their budgets and defer several new projects; however, we have continued to work with our customers to improve project economics through technology and improved operating efficiency. In Latin America, rig count has grown slightly in the third quarter of 2017, after experiencing historic lows across the region during 2016. These increases were driven by Argentina, Mexico and Brazil. Venezuela continues to experience significant political and economic turmoil. While the region is slowly showing signs of improvement, there are significant headwinds and pricing pressures that must be overcome to obtain a full recovery and we remain focused on efficiencies in our execution. For the Eastern Hemisphere, we believe the first quarter represented the bottom of the international rig count. The Middle East remains our most active international market, with the largest part of the work focused on maximizing production in mature fields with the use of technology and expanded reservoir knowledge. Due to the longer term contractual nature of international markets and the level of continuing price pressure, we expect pricing pressures will offset activity gains over the near term.

*Venezuela.* The Venezuelan government currently has a dual-rate foreign exchange system: (i) the DIPRO, which represents a protected rate of 10.0 Bolívares per United States dollar made available for vital imports such as food, medicine and raw materials for production; and (ii) the DICOM, which is intended to be a free floating system that will fluctuate according to market supply and demand. The DICOM continues to significantly devalue and had a market rate of 3,345 Bolívares per United States dollar at September 30, 2017, as compared to a market rate of 276 Bolívares per United States dollar in early 2016 when the DICOM was created. We are utilizing the DICOM to remeasure our net monetary assets denominated in Bolívares. The continued devaluation of the Bolívar under the DICOM did not materially affect our financial statements for the nine months ended September 30, 2017 due to our immaterial net monetary position in the local currency.

As of September 30, 2017, our total net investment in Venezuela was approximately $727 million, with less than $1 million of net monetary liabilities denominated in Bolívares, and we had an additional $36 million of surety bond guarantees outstanding relating to our Venezuelan operations.

See Note 2 and Note 7 to the condensed consolidated financial statements for additional information about outstanding receivables from our primary customer in Venezuela and Part II, Item 1(a), “Risk Factors” for additional information on risks associated with our operations in Venezuela, including recent sanctions imposed in Venezuela.

### RESULTS OF OPERATIONS IN 2017 COMPARED TO 2016

### Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016

| REVENUE: Millions of dollars | Three Months Ended September 30 2017 | 2016 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $3,537 | $2,176 | $1,361 | 63% |
| Drilling and Evaluation | 1,907 | 1,657 | 250 | 15 |
| Total revenue | $5,444 | $3,833 | $1,611 | 42% |
| By geographic region: |  |  |  |  |
| North America | $3,163 | $1,658 | $1,505 | 91% |
| Latin America | 530 | 415 | 115 | 28 |
| Europe/Africa/CIS | 722 | 744 | (22) | (3) |
| Middle East/Asia | 1,029 | 1,016 | 13 | 1 |
| Total revenue | $5,444 | $3,833 | $1,611 | 42% |

| OPERATING INCOME: Millions of dollars | Three Months Ended September 30 2017 | 2016 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $525 | $24 | $501 | 2,088% |
| Drilling and Evaluation | 180 | 151 | 29 | 19 |
| Total | 705 | 175 | 530 | 303 |
| Corporate and other | (71) | (47) | (24) | (51) |
| Total operating income | $634 | $128 | $506 | 395% |

Consolidated revenue was $5.4 billion in the third quarter of 2017, an increase of $1.6 billion, or 42%, as compared to the third quarter of 2016, primarily associated with improvements in pressure pumping services and drilling activity, as well as contributions from our recent artificial lift acquisition in North America. Revenue from North America was 58% of consolidated revenue in the third quarter of 2017, compared to 43% of consolidated revenue in the third quarter of 2016, reflecting the improvement that our North America operations are experiencing as the oil and gas industry recovers.

Consolidated operating income was $634 million during the third quarter of 2017 compared to $128 million in the third quarter of 2016. Operating results improved primarily from increased activity, utilization and pricing associated with pressure pumping services.

### OPERATING SEGMENTS

#### Completion and Production

Completion and Production revenue in the third quarter of 2017 was $3.5 billion, an increase of $1.4 billion, or 63%, from the third quarter of 2016. Operating income in the third quarter of 2017 was $525 million, an increase of $501 million from the third quarter of 2016. Improved operating results were primarily related to increased activity, utilization and pricing associated with pressure pumping services in the United States land market, as well as stimulation activity in Canada and the Gulf of Mexico, in addition to contributions from our recent artificial lift acquisition.

#### Drilling and Evaluation

Drilling and Evaluation revenue in the third quarter of 2017 was $1.9 billion, an increase of $250 million, or 15%, from the third quarter of 2016. Improved results were driven by increased drilling activity and logging services in the United States land market, project management and drilling fluid services in Mexico, and drilling activity in Russia. These increases were partially offset by reduced activity and pricing for drilling-related services in the Eastern Hemisphere.

Operating income in the third quarter of 2017 was $180 million, an increase of $29 million, or 19%, compared to the third quarter of 2016, driven by improved pricing and activity for drilling-related services in the United States land market, partially offset by the impact of pricing pressures and activity reductions in the Eastern Hemisphere for drilling and logging activity.

### GEOGRAPHIC REGIONS

#### North America

North America revenue in the third quarter of 2017 was $3.2 billion, a 91% improvement compared to the third quarter of 2016. Revenue increases were driven by improved customer demand in our United States land sector, resulting in increased pricing and utilization across almost all of our product service lines, primarily pressure pumping services, drilling fluids and drilling services, coupled with contributions from our recent artificial lift acquisition.

#### Latin America

Latin America revenue in the third quarter of 2017 was $530 million, a 28% increase compared to the third quarter of 2016, primarily as a result of increased project management and drilling services in Mexico, improved pressure pumping services in Argentina, increased activity in Colombia, and higher activity for well intervention and pipelines services in Brazil. These increases were partially offset by reduced activity in Venezuela and lower completion tool sales in Brazil.

#### Europe/Africa/CIS

Europe/Africa/CIS revenue in the third quarter of 2017 was $722 million, a decline of 3% compared to the third quarter of 2016. The decreases during the quarter were primarily driven by reduced activity in Angola, lower completion tool sales in Azerbaijan, and lower cementing and drilling-related activity in the North Sea. These decreases were partially offset by activity improvements in Russia and Nigeria and increased project management activity in the North Sea.

#### Middle East/Asia

Middle East/Asia revenue in the third quarter of 2017 was $1.0 billion, relatively flat compared to the third quarter of 2016. Improved stimulation activity and well intervention services in the Middle East were partially offset by reduced drilling activity across the region.

### NONOPERATING ITEMS

*Interest expense, net* decreased $26 million in the third quarter of 2017, compared to the third quarter of 2016, primarily due to interest savings from the early extinguishment of $1.4 billion of senior notes in the first quarter of 2017.

*Effective tax rate*. During the three months ended September 30, 2017, we recorded a total income tax provision of $135 million on pre-tax income of $496 million, resulting in an effective tax rate of 27.2%. During the three months ended September 30, 2016, we recorded a total income tax benefit of $59 million on pre-tax losses of $52 million, resulting in an effective tax rate of 114.3%. Our effective tax rate during the third quarter of 2016 was primarily impacted by a $29 million tax benefit reflecting the beneficial use of an Argentinian tax treaty that reduces the taxation of royalty payments for intellectual property. The effective tax rates in both periods were impacted by the geographic mix of earnings for the respective periods.

### Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016

| REVENUE: Millions of dollars | Nine Months Ended September 30 2017 | 2016 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $9,273 | $6,614 | $2,659 | 40% |
| Drilling and Evaluation | 5,407 | 5,252 | 155 | 3 |
| Total revenue | $14,680 | $11,866 | $2,814 | 24% |
| By geographic region: |  |  |  |  |
| North America | $8,164 | $4,968 | $3,196 | 64% |
| Latin America | 1,501 | 1,432 | 69 | 5 |
| Europe/Africa/CIS | 2,005 | 2,317 | (312) | (13) |
| Middle East/Asia | 3,010 | 3,149 | (139) | (4) |
| Total revenue | $14,680 | $11,866 | $2,814 | 24% |

| OPERATING INCOME: Millions of dollars | Nine Months Ended September 30 2017 | 2016 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $1,069 | $22 | $1,047 | 4,759% |
| Drilling and Evaluation | 427 | 546 | (119) | (22) |
| Total | 1,496 | 568 | 928 | 163 |
| Corporate and other | (251) | (4,210) | 3,959 | 94 |
| Impairments and other charges | (262) | (3,189) | 2,927 | 92 |
| Total operating income (loss) | $983 | $(6,831) | $7,814 | — |

Consolidated revenue was $14.7 billion in the first nine months of 2017, an increase of $2.8 billion, or 24%, as compared to the first nine months of 2016, primarily due to increased pressure pumping services and drilling activity in North America, partially offset by reduced drilling and logging activity in the Eastern Hemisphere. Revenue from North America was 56% of consolidated revenue in the first nine months of 2017, compared to 42% of consolidated revenue in the first nine months of 2016, reflecting the improvement that our North America operations are experiencing as the oil and gas industry recovers.

Consolidated operating income was $983 million in the first nine months of 2017, which includes a $262 million pre-tax loss for a fair market value adjustment related to Venezuela. See Note 2 to the condensed consolidated financial statements for further discussion. This compares to an operating loss of $6.8 billion during the first nine months of 2016, which includes $4.1 billion for a merger termination fee and related costs and $3.2 billion of impairments and other charges. Operating results improved primarily from increased activity, utilization and pricing associated with pressure pumping services and completion tool sales in North America.

### OPERATING SEGMENTS

#### Completion and Production

Completion and Production revenue in the first nine months of 2017 was $9.3 billion, an increase of $2.7 billion, or 40%, from the first nine months of 2016. Operating income in the first nine months of 2017 was $1.1 billion, compared to operating income of $22 million in the first nine months of 2016. Improved operating results were primarily related to increased activity, utilization and pricing associated with pressure pumping services and completion tool sales in the United States land market and Canada, partially offset by reduced completion tool sales in the Eastern Hemisphere.

#### Drilling and Evaluation

Drilling and Evaluation revenue in the first nine months of 2017 was $5.4 billion, an increase of $155 million, or 3%, from the first nine months of 2016. Operating income in the first nine months of 2017 was $427 million, a decrease of $119 million, or 22%, compared to the first nine months of 2016. Increased drilling activity in our North America operations were offset by reductions across the majority of our product service lines in the Eastern Hemisphere due to pricing pressures and activity reductions, particularly drilling and logging services.

### GEOGRAPHIC REGIONS

#### North America

North America revenue in the first nine months of 2017 was $8.2 billion, a 64% increase compared to the first nine months of 2016. These results were driven by improved customer demand in our United States land sector with increases in both pricing and activity, primarily related to pressure pumping services, drilling activity and completion tool sales.

#### Latin America

Latin America revenue in the first nine months of 2017 was $1.5 billion, a 5% increase compared to the first nine months of 2016, primarily due to increased activity for well intervention, stimulation and drilling-related services in Brazil, increased activity for pressure pumping, drilling-related and logging services in Colombia, and improved drilling-related and project management activity in Ecuador. Partially offsetting these increases were reduced activity in the majority of our product service lines in Venezuela and Mexico, reduced completion tool sales in Brazil and lower drilling activity in Argentina.

#### Europe/Africa/CIS

Europe/Africa/CIS revenue in the first nine months of 2017 was $2.0 billion, a 13% decrease from the first nine months of 2016, primarily resulting from activity reductions and pricing pressure, particularly in well completion and pressure pumping services across the region, as well as all of our product service lines in Angola and the North Sea. These decreases were partially offset by improved activity for cementing, drilling and pipeline services in Russia.

#### Middle East/Asia

Middle East/Asia revenue in the first nine months of 2017 was $3.0 billion, a 4% decrease from the first nine months of 2016, due to reduced drilling activity and completion tool sales across the region, and lower logging activity in Thailand. These decreases were partially offset by improved stimulation and well intervention activity in the Middle East, increased project management activity in Iraq, and higher drilling fluids and project management activity in India.

### OTHER OPERATING ITEMS

*Corporate and other* expenses were $251 million in the first nine months of 2017 compared to $4.2 billion in the first nine months of 2016. During the first nine months of 2017, we incurred approximately $42 million of charges for litigation settlements, the majority of which related to the resolution of an SEC investigation and one-time executive compensation charges. See Note 5 to the condensed consolidated financial statements for further information. During the first nine months of 2016, we incurred $4.1 billion of charges for a merger termination fee and related costs.

*Impairments and other charges* were $262 million in the nine months ended September 30, 2017, associated with a fair market value adjustment related to Venezuela. See Note 2 to the condensed consolidated financial statements for further discussion. This compares to $3.2 billion in company-wide charges during the nine months ended September 30, 2016, which consisted of fixed asset impairments and write-offs, inventory write-downs, impairments of intangible assets, severance costs, facility closures, a loss on exchange for a promissory note in Venezuela, and other charges.

### NONOPERATING ITEMS

*Interest expense, net* was $478 million in the first nine months of 2017, which includes $104 million in costs related to the early extinguishment of $1.4 billion of senior notes during the first quarter of 2017. This compares to $502 million of net interest expense in the first nine months of 2016, which includes $41 million of debt redemption fees and associated expenses related to the $2.5 billion of senior notes mandatorily redeemed in the second quarter of 2016. The first nine months of 2017 reflects the corresponding interest savings from these debt payments.

*Effective tax rate*. During the nine months ended September 30, 2017, we recorded a total income tax provision of $81 million on pre-tax income of $438 million, resulting in an effective tax rate of 18.5%. During the nine months ended September 30, 2016, we recorded a total income tax benefit of $1.8 billion on pre-tax losses of $7.5 billion, resulting in an effective tax rate of 24.6%. The effective tax rates in both periods were impacted by the geographic mix of earnings for the respective periods.

### 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 5 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.

## 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 2016 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2016.

## Controls and procedures

As filed, 1,437 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 September 30, 2017 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Oct 27, 2017.
Source: SEC EDGAR, the filing index for accession 0000045012-17-000218. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.