# Halliburton Co: Form 10-Q for the period ended Jun 30, 2018

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2018-07-27
- Accepted by EDGAR: Jul 27, 2018, 15:05 ET
- Period: 2018-06-30
- Accession: 0000045012-18-000120
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501218000120/hal_06302018-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501218000120/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2018-04-01 to 2018-06-30 | $1.07bn | us-gaap:CostOfGoodsSold |
| Cost of revenue | 6 months, 2018-01-01 to 2018-06-30 | $2.13bn | us-gaap:CostOfGoodsSold |
| Operating income | 3 months, 2018-04-01 to 2018-06-30 | $789.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2018-01-01 to 2018-06-30 | $1.14bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-04-01 to 2018-06-30 | $125.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2018-01-01 to 2018-06-30 | $267.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-04-01 to 2018-06-30 | $511.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2018-01-01 to 2018-06-30 | $557.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-04-01 to 2018-06-30 | $0.58 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2018-01-01 to 2018-06-30 | $0.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-04-01 to 2018-06-30 | $0.58 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2018-01-01 to 2018-06-30 | $0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-04-01 to 2018-06-30 | 880,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2018-01-01 to 2018-06-30 | 879,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2018-01-01 to 2018-06-30 | $1.53bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2018-01-01 to 2018-06-30 | $1.07bn | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 6 months, 2018-01-01 to 2018-06-30 | $316.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Current assets | at 2018-06-30 | $11.44bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-06-30 | $25.77bn | us-gaap:Assets |
| Current liabilities | at 2018-06-30 | $5.11bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-06-30 | $16.92bn | us-gaap:Liabilities |
| Long-term debt | at 2018-06-30 | $10.43bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-06-30 | $444.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-06-30 | $8.82bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,403 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 55,000 employees, we operate in more than 80 countries around the world, and our corporate headquarters are in Houston, Texas and Dubai, United Arab Emirates.

### Financial results

We generated total company revenue of $6.1 billion during the second quarter of 2018, a 24% increase from the $5.0 billion of revenue generated during the second quarter of 2017. Total company operating income was $789 million during the second quarter of 2018, compared to operating income of $146 million in the second quarter of 2017, which included a $262 million pre-tax loss for a fair market value adjustment related to Venezuela. Our North American business continues to demonstrate strong performance in a quickly evolving market with rapid rig count and activity growth, while our international business continues to experience increased activity, offset by a challenging pricing environment. Our Completion and Production segment revenue improved 33% and our Drilling and Evaluation segment revenue increased 9% from the second quarter of 2017. We continue to focus on aligning our business with customers in the highest growth markets like mature fields and unconventional resources and collaborate and engineer solutions to maximize their asset value while seeking to optimize the company’s growth and returns.

In North America, our business continued to improve during the second quarter of 2018, with revenue increasing 38% and outperforming a 13% increase in average North American rig count, when compared to the second quarter of 2017. The rig count growth, combined with the continued completions intensity, has improved demand across our product service lines, with significant improvements in pressure pumping activity. We generated significant margin improvement and profitability growth as a result of strengthened activity and a supportive commodity price environment. Our United States land sector achieved operating margins approaching 2014 peak levels, despite pricing levels that have yet to fully rebound from the recent down cycle and logistical challenges and cost inflation. Strong U.S. economic activity is creating tightness across the supply chain, particularly in trucking, labor, and maintenance costs. We are actively managing these costs.

Our international revenue during the second quarter of 2018 increased 6% as compared to the second quarter of 2017, driven primarily by increased drilling and pressure pumping activity in the Eastern Hemisphere. While the international markets are improving, pricing pressure remains a challenge. We have seen a large number of tenders in the first half of the year that were competitively bid as service companies vied for market share and our customers sought to capture bottom of the cycle pricing. We have grown our market share in the international markets throughout the downturn because of our strong service quality and technology offerings and our willingness to collaborate with our customers. Our product service lines continue to focus on delivering technology-driven value propositions to help our customers increase production and lower costs.

### Business outlook

In North America, one of our key strategies during the downturn was to build market share based on our strong belief in the long term potential of the North America market and by demonstrating to our customers the benefits of our service quality and technology. We believe we have successfully executed on this strategy and intend to continue to focus on maintaining our market position. We are monitoring the future impact of cost inflation from trucking and increased equipment maintenance expense and are focused on managing these challenges. We will also continue to focus on managing the logistical complexities that come with the growing market by leveraging our supply chain and logistics infrastructure, capturing efficiencies around our repair and maintenance programs and implementing technologies at scale to reduce cost and increase production.

Additionally, we expect temporary challenges in select basins due to pipeline capacity constraints, strong production results, and customer budget limits, creating mixed customer reactions. These include a moderation in customer activity and a shifting of focus between basins. While we believe these challenges are temporary and should be resolved in 2019, they will likely create headwinds for additional upward pricing in the third quarter of 2018. Overall, the market has strong fundamentals and supportive commodity prices are expected to encourage continued long term growth in North America. We will continue our efforts to optimize pricing and utilization, pursue continued technology implementation and control costs.

Internationally, the markets are improving and we believe we are well-positioned for continued growth as a result of the investment we made to grow our global footprint in the last cycle. We are experiencing enhanced tender activity and are holding constructive conversations with our customers. While we expect international activity to improve, pricing pressure and concessions that have been given throughout the cycle need to be unwound. The tightening of capacity caused by increased activity should lead to improved overall pricing in 2019, the magnitude of which will depend on the commodity price environment and equipment absorption. We will continue to collaborate with our customers to create solutions through technology and improved operating efficiency to help overcome challenging project economics.

During the first half of 2018, we had approximately $1.1 billion of capital expenditures, an increase of 80% from the first half of 2017. Our 2018 capital expenditures were predominantly made in our Production Enhancement, Sperry Drilling, Artificial Lift, Cementing, and Wireline and Perforating product service lines.

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 2018:

- 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;
- collaborating and engineering solutions to maximize asset value for our customers; and
- striving to achieve superior growth and returns for our shareholders.

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

### Financial markets, liquidity, and capital resources

We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. As of June 30, 2018, we had $2.1 billion of cash and equivalents, $414 million of marketable securities, and $3.0 billion available under our revolving credit facility, which 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 June 30, 2018, we had $2.1 billion of cash and equivalents, compared to $2.3 billion at December 31, 2017. Additionally, we held $414 million of marketable securities at June 30, 2018, primarily time deposits that mature in July 2018, compared to $70 million of marketable securities and $36 million of long-term investments in fixed income securities at December 31, 2017, primarily corporate bonds and other debt instruments.

### Significant sources and uses of cash

#### Sources of cash:

\- Cash flows from operating activities were $1.5 billion during the first six months of 2018.

#### Uses of cash:

\- Capital expenditures were $1.1 billion in the first six months of 2018, and were predominantly made in our Production Enhancement, Sperry Drilling, Artificial Lift, Cementing, and Wireline and Perforating product service lines.

\- We paid $316 million in dividends to our shareholders during the first six months of 2018.

\- We purchased $307 million of investment securities during the first six months of 2018, net of sales.

\- During the first six months of 2018, working capital (receivables, inventories and accounts payable) increased by a net $163 million, primarily due to increased business activity.

\- During the first six months of 2018, we paid $148 million for acquisitions of various businesses, net of cash acquired, to further enhance our existing product service lines.

### Future sources and uses of cash

We manufacture most of our own equipment, which allows us flexibility to increase or decrease our capital expenditures based on market conditions. Capital spending for the full year 2018 is currently expected to be approximately $2.0 billion. The capital expenditures plan for 2018 is primarily directed towards our industry-leading pressure pumping fleet, the deployment of new Sperry drilling tools and the continued investment in our Artificial Lift and Multi-Chem product service lines.

We have $400 million of senior notes that mature in August 2018, which we intend to repay with cash on hand. In addition, we are actively evaluating our options and opportunities around uses of cash and are targeting to retire our $500 million 2021 debt maturity in the second half of this year.

Currently, our quarterly dividend rate is $0.18 per common share, or approximately $158 million. Subject to Board of Directors approval, our intention is to continue paying dividends at our current rate during 2018. 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 June 30, 2018 and may be used for open market and other share purchases. There were no repurchases made under the program during the six months ended June 30, 2018, but we are targeting to initiate share repurchases in the second half of 2018.

### Other factors affecting liquidity

*Financial position in current market.* As of June 30, 2018, we had $2.1 billion of cash and equivalents, $414 million of marketable securities, 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 our global cash needs in 2018, including debt retirement, 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 June 30, 2018. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization.

*Credit ratings.* Our credit ratings with Standard & Poor’s (S&P) remain A- for our long-term debt and A-2 for our short-term debt, with a stable outlook. Our credit ratings with Moody’s Investors Service (Moody's) remain Baa1 for our long-term debt and P-2 for our short-term debt, with a stable outlook.

*Customer receivables*. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets as well as unsettled political conditions. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations and consolidated financial condition. See Note 2 to the condensed consolidated financial statements for further discussion related to receivables in Venezuela.

### BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in more than 80 countries throughout the world to provide a comprehensive range of services and products to the energy industry. A significant amount of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. The industry we serve is highly competitive with many substantial competitors in each segment of our business. During the first six months of 2018, based upon the location of the services provided and products sold, 59% of our consolidated revenue was from the United States, compared to 51% of consolidated revenue from the United States in the first six months of 2017. No other country accounted for more than 10% of our revenue.

Operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil unrest, force majeure, war or other armed conflict, sanctions, expropriation or other governmental actions, inflation, changes in foreign currency exchange rates, foreign currency exchange restrictions and highly inflationary currencies, as well as other geopolitical factors. We believe the geographic diversification of our business activities reduces the risk that 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, completions intensity, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling and completions activity. Lower oil and natural gas prices usually translate into lower exploration and production budgets and lower rig count, while the opposite is true for higher oil and natural gas prices. Our financial performance is therefore significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.

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

|  | Three Months Ended June 30 2018 | 2017 | Year Ended December 31 2017 |
| --- | ---: | ---: | ---: |
| Oil price - WTI (1) | $68.03 | $48.24 | $50.93 |
| Oil price - Brent (1) | 74.50 | 49.67 | 54.30 |
| Natural gas price - Henry Hub (2) | 2.86 | 3.08 | 3.04 |
| (1) Oil price measured in dollars per barrel (2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu |  |  |  |

16

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 June 30 2018 2017 | Six Months Ended June 30 2018 2017 |
| --- | ---: | ---: |
| Land | 1,021 874 | 986 798 |
| Offshore (incl. Gulf of Mexico) | 18 21 | 17 21 |
| Total | 1,039 895 | 1,003 819 |
| Canada: |  |  |
| Land | 105 116 | 186 205 |
| Offshore | 3 1 | 2 1 |
| Total | 108 117 | 188 206 |
| International (excluding Canada): |  |  |
| Land | 772 758 | 775 748 |
| Offshore | 196 200 | 194 201 |
| Total | 968 958 | 969 949 |
| Worldwide total | 2,115 1,970 | 2,160 1,974 |
| Land total | 1,898 1,748 | 1,947 1,751 |
| Offshore total | 217 222 | 213 223 |
|  | Three Months Ended June 30 | Six Months Ended June 30 |
| **Oil vs. Natural Gas** | 2018 2017 | 2018 2017 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 844 718 | 813 656 |
| Natural gas | 195 177 | 190 163 |
| Total | 1,039 895 | 1,003 819 |
| Canada: |  |  |
| Oil | 56 53 | 117 107 |
| Natural gas | 52 64 | 71 99 |
| Total | 108 117 | 188 206 |
| International (excluding Canada): |  |  |
| Oil | 767 738 | 765 728 |
| Natural gas | 201 220 | 204 221 |
| Total | 968 958 | 969 949 |
| Worldwide total | 2,115 1,970 | 2,160 1,974 |
| Oil total | 1,667 1,509 | 1,695 1,491 |
| Natural gas total | 448 461 | 465 483 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended June 30 2018 | 2017 | Six Months Ended June 30 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Horizontal | 914 | 751 | 874 | 681 |
| Vertical | 58 | 77 | 61 | 73 |
| Directional | 67 | 67 | 68 | 65 |
| Total | 1,039 | 895 | 1,003 | 819 |

17

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 substantially. WTI oil spot prices reached a high of $77 per barrel in June 2018 and Brent crude oil spot prices reached a high of $80 per barrel in May 2018. The average WTI and Brent crude oil spot prices during the second quarter of 2018 were $68 per barrel and $75 per barrel, respectively.

In the United States Energy Information Administration (EIA) July 2018 "Short Term Energy Outlook," the EIA projects Brent prices to average $73 per barrel and $69 per barrel in the second half of 2018 and in 2019, respectively, while WTI prices are projected to average about $6 less per barrel and $7 less per barrel for the same periods. Crude oil production in the United States is now projected to average 10.8 million barrels per day in 2018, a 15% increase from 2017. Additionally, the EIA projects that U.S. production will increase 9% in 2019, to average 11.8 million barrels per day. The International Energy Agency's (IEA) July 2018 "Oil Market Report" forecasts the 2018 global demand to average approximately 99.1 million barrels per day, which is up 1.4% from 2017, driven by an increase in the Asia Pacific region, while all other regions remain approximately the same.

The Henry Hub natural gas spot price in the United States averaged $2.97 per MMBtu in June 2018, essentially flat year over year. The EIA July 2018 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.99 per MMBtu in 2018 and $3.04 per MMBtu in 2019.

### North America operations

The average North America oil-directed rig count increased 129 rigs, or 17%, for the second quarter of 2018 as compared to the second quarter of 2017, while the average North America natural gas-directed rig count increased 6 rigs, or 2% during the same period. During the second quarter of 2018, the United States land market experienced a 17% improvement in the average rig count compared to the second quarter of 2017 and completions activity continued to strengthen. This combination has improved demand across all of our product service lines. We are facing challenges with cost inflation and increased equipment maintenance expense and are focused on managing these challenges in preparation for activity growth in 2019.

In the Gulf of Mexico, the average offshore rig count for the second quarter of 2018 was down 14% compared to the second quarter of 2017. The commodity pricing environment over the last few years has stressed budgets and impacted economics across the deepwater market, negatively impacting activity and pricing. These headwinds persist today, and we believe there will continue to be challenges to deepwater project economics for the foreseeable future. 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 second quarter of 2018 was essentially flat compared to the second quarter of 2017. International tendering activity has been increasing and we continue to work with our customers to improve project economics through technology and improved operating efficiency. 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. While we expect the international markets will continue to improve over the next few years, and we are encouraged by the activity outlook, there are headwinds that must be overcome to obtain a full recovery. This includes pricing pressure and price concessions that we have given throughout the down cycle which we need to recapture. We will continue to remain focused on efficiencies in our execution.

*Venezuela.* Venezuela continues to experience significant political and economic turmoil. During the first quarter of 2018, the Venezuelan government announced that it changed the existing dual-rate foreign currency exchange system by eliminating the DIPRO foreign exchange rate, which had a protected rate of 10 Bolívares per United States dollar, and that all future currency transactions would be carried out at the DICOM floating rate, which was 115,000 Bolívares per United States dollar at June 30, 2018. Additionally, the Office of Foreign Assets Control of the U.S. Department of the Treasury issued guidance which purports to prohibit the acceptance of payments on receivables issued on or after August 25, 2017 and outstanding longer than 90 days from customers subject to U.S. sanctions related to Venezuela in the absence of an OFAC license. See Note 2 to the condensed consolidated financial statements for further discussion on the write-down of our investment in Venezuela that we recognized in the first quarter of 2018 as a result of these events. Also, see Part II, Item 1(a), “Risk Factors” for additional information on risks associated with our operations in Venezuela.

### RESULTS OF OPERATIONS IN 2018 COMPARED TO 2017

### Three Months Ended June 30, 2018 Compared with Three Months Ended June 30, 2017

| REVENUE: Millions of dollars | Three Months Ended June 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,164 | $3,132 | $1,032 | 33% |
| Drilling and Evaluation | 1,983 | 1,825 | 158 | 9 |
| Total revenue | $6,147 | $4,957 | $1,190 | 24% |
| By geographic region: |  |  |  |  |
| North America | $3,834 | $2,770 | $1,064 | 38% |
| Latin America | 479 | 508 | (29) | (6) |
| Europe/Africa/CIS | 726 | 679 | 47 | 7 |
| Middle East/Asia | 1,108 | 1,000 | 108 | 11 |
| Total revenue | $6,147 | $4,957 | $1,190 | 24% |

| OPERATING INCOME: Millions of dollars | Three Months Ended June 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $669 | $397 | $272 | 69% |
| Drilling and Evaluation | 191 | 125 | 66 | 53 |
| Total | 860 | 522 | 338 | 65 |
| Corporate and other | (71) | (114) | 43 | 38 |
| Impairments and other charges | — | (262) | 262 | — |
| Total operating income | $789 | $146 | $643 | 440% |

Consolidated revenue was $6.1 billion in the second quarter of 2018, an increase of $1.2 billion, or 24%, as compared to the second quarter of 2017, with increases across the majority of our product service lines in North America, primarily associated with improvements in pressure pumping services and artificial lift, as well as drilling activity in the Eastern Hemisphere. Revenue from North America was 62% of consolidated revenue in the second quarter of 2018, compared to 56% of consolidated revenue in the second quarter of 2017, reflecting the increase that our North America operations are experiencing from improved market conditions.

Consolidated operating income was $789 million during the second quarter of 2018 compared to $146 million in the second quarter of 2017, which included a $262 million pre-tax loss for a fair market value adjustment related to Venezuela. Operating results improved primarily from increased pressure pumping activity in North America.

### OPERATING SEGMENTS

#### Completion and Production

Completion and Production revenue in the second quarter of 2018 was $4.2 billion, an increase of $1.0 billion, or 33%, from the second quarter of 2017. Operating income in the second quarter of 2018 was $669 million, an increase of $272 million, or 69%, from the second quarter of 2017. Improvements were led by increased activity across all of our product service lines in the United States land sector, particularly pressure pumping activity and artificial lift. Additionally, results improved due to pressure pumping services in Europe/Africa/CIS, along with increased stimulation and production solutions activity in the Middle East. Offsetting these increases were reduced completion tool sales in Europe/Africa/CIS.

#### Drilling and Evaluation

Drilling and Evaluation revenue in the second quarter of 2018 was $2.0 billion, an increase of $158 million, or 9%, from the second quarter of 2017. Operating income in the second quarter of 2018 was $191 million, an increase of $66 million, or 53%, compared to the second quarter of 2017. These increases were primarily due to increased drilling activity in the United

States land sector and Middle East/Asia, as well as higher project management activity in the Eastern Hemisphere. These results were partially offset by lower drilling activity in Latin America.

### GEOGRAPHIC REGIONS

#### North America

North America revenue in the second quarter of 2018 was $3.8 billion, a 38% increase compared to the second quarter of 2017. This improvement was driven by increased activity throughout the United States land sector in the majority of our product service lines, primarily related to pressure pumping services, drilling services, and artificial lift.

#### Latin America

Latin America revenue in the second quarter of 2018 was $479 million, a 6% decrease compared to the second quarter of 2017, resulting primarily from reduced activity in Venezuela and lower drilling activity in Mexico. These results were partially offset by increases in the majority of our product service lines in Argentina, primarily associated with stimulation services.

#### Europe/Africa/CIS

Europe/Africa/CIS revenue in the second quarter of 2018 was $726 million, a 7% increase compared to the second quarter of 2017, primarily due to higher pressure pumping services throughout the region, coupled with increased activity in the North Sea. These results were partially offset by activity reductions in Angola.

#### Middle East/Asia

Middle East/Asia revenue in the second quarter of 2018 was $1.1 billion, an 11% increase compared to the second quarter of 2017, primarily resulting from increases in drilling services and stimulation activity in the Middle East and project management activity in India.

### OTHER OPERATING ITEMS

*Corporate and other* expenses were $71 million in the second quarter of 2018 compared to $114 million in the second quarter of 2017, which included approximately $42 million of one-time charges for executive compensation and litigation settlements, the majority of which related to the resolution of an SEC investigation.

*Impairments and other charges* were $262 million in the second quarter of 2017, associated with a fair market value adjustment related to Venezuela. There were no such charges in the second quarter of 2018.

### NONOPERATING ITEMS

*Effective tax rate*. During the three months ended June 30, 2018, we recorded a total income tax provision of $125 million on pre-tax income of $633 million, resulting in an effective tax rate of 19.8%. Our effective tax rate for this period was impacted by the lower corporate rate from U.S. tax reform. During the three months ended June 30, 2017, we recorded a total income tax benefit of $29 million on a pre-tax loss of $1 million. Our effective tax rate for this period was impacted by a low level of earnings and a net $20 million tax benefit associated with global prior year audits. Our effective tax rates for both periods were also impacted by a geographic mix of earnings for the respective periods.

### Six Months Ended June 30, 2018 Compared with Six Months Ended June 30, 2017

| REVENUE: Millions of dollars | Six Months Ended June 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $7,971 | $5,736 | $2,235 | 39% |
| Drilling and Evaluation | 3,916 | 3,500 | 416 | 12 |
| Total revenue | $11,887 | $9,236 | $2,651 | 29% |
| By geographic region: |  |  |  |  |
| North America | $7,351 | $5,001 | $2,350 | 47% |
| Latin America | 936 | 971 | (35) | (4) |
| Europe/Africa/CIS | 1,442 | 1,283 | 159 | 12 |
| Middle East/Asia | 2,158 | 1,981 | 177 | 9 |
| Total revenue | $11,887 | $9,236 | $2,651 | 29% |

| OPERATING INCOME: Millions of dollars | Six Months Ended June 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $1,169 | $544 | $625 | 115% |
| Drilling and Evaluation | 379 | 247 | 132 | 53 |
| Total | 1,548 | 791 | 757 | 96 |
| Corporate and other | (140) | (180) | 40 | 22 |
| Impairments and other charges | (265) | (262) | (3) | (1) |
| Total operating income | $1,143 | $349 | $794 | 228% |

Consolidated revenue was $11.9 billion in the first six months of 2018, an increase of $2.7 billion, or 29%, as compared to the first six months of 2017, with increases across all of our product service lines globally, primarily associated with pressure pumping services, drilling activity and artificial lift in North America, as well as drilling activity in the Eastern Hemisphere. Revenue from North America was 62% of consolidated revenue in the first six months of 2018, compared to 54% of consolidated revenue in the first six months of 2017, reflecting the increase that our North America operations are experiencing from improved market conditions.

Consolidated operating income was $1.1 billion in the first six months of 2018, compared to operating income of $349 million during the first six months of 2017, primarily due to improved pressure pumping activity in North America. Operating results in the first six months of 2018 were impacted by $265 million of impairments and other charges related to Venezuela, while operating results in the first six months of 2017 included 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 information on the Venezuela charge taken in the first quarter of 2018.

### OPERATING SEGMENTS

#### Completion and Production

Completion and Production revenue in the first six months of 2018 was $8.0 billion, an increase of $2.2 billion, or 39%, from the first six months of 2017. Operating income in the first six months of 2018 was $1.2 billion, compared to operating income of $544 million in the first six months of 2017. Improvements were led by increased activity across all of our product service lines in the United States land sector, primarily associated with pressure pumping services and artificial lift. Additionally, results improved due to pressure pumping services in Europe/Africa/CIS, along with increased stimulation and production solutions activity in the Middle East.

#### Drilling and Evaluation

Drilling and Evaluation revenue in the first six months of 2018 was $3.9 billion, an increase of $416 million, or 12%, from the first six months of 2017. Operating income in the first six months of 2018 was $379 million, an increase of $132 million, or 53%, compared to the first six months of 2017. These increases were primarily due to increased drilling activity in the United States land sector and Eastern Hemisphere. Partially offsetting these results were activity declines across multiple product lines in Latin America, primarily drilling activity.

### GEOGRAPHIC REGIONS

#### North America

North America revenue in the first six months of 2018 was $7.4 billion, a 47% increase compared to the first six months of 2017. These results were driven by improved customer demand in our United States land sector, primarily related to pressure pumping services, drilling services, and artificial lift.

#### Latin America

Latin America revenue in the first six months of 2018 was $936 million, a 4% decrease compared to the first six months of 2017, resulting primarily from activity declines across multiple product service lines in Venezuela, as well as decreases in drilling activity in Mexico. These results were partially offset by increases in stimulation activity in Argentina.

#### Europe/Africa/CIS

Europe/Africa/CIS revenue in the first six months of 2018 was $1.4 billion, a 12% increase from the first six months of 2017, primarily due to increased activity in the North Sea, particularly pressure pumping and drilling services. These results were partially offset by activity reductions in Angola.

#### Middle East/Asia

Middle East/Asia revenue in the first six months of 2018 was $2.2 billion, a 9% increase from the first six months of 2017, primarily resulting from increases in drilling services and stimulation activity in the Middle East and consulting and project management activity in India.

### OTHER OPERATING ITEMS

*Corporate and other* expenses were $140 million in the first six months of 2018 compared to $180 million in the first six months of 2017, which included approximately $42 million of one-time charges for executive compensation and litigation settlements, the majority of which related to the resolution of an SEC investigation.

*Impairments and other charges* were $265 million in the six months ended June 30, 2018, related to a write-down of all of our remaining investment in Venezuela. See Note 2 to the condensed consolidated financial statements for further discussion on this charge and Part II, Item 1(a), “Risk Factors” for additional information on risks associated with our operations in Venezuela. This compares to $262 million of charges in the six months ended June 30, 2017, associated with a fair market value adjustment related to Venezuela.

### NONOPERATING ITEMS

*Interest expense, net* was $277 million in the first six months of 2018, as compared to $363 million of net interest expense in the first six months of 2017, which included $104 million of costs related to the early extinguishment of $1.4 billion of senior notes.

*Effective tax rate*. During the six months ended June 30, 2018, we recorded a total income tax provision of $267 million on pre-tax income of $822 million, resulting in an effective tax rate of 32.5%. Our effective tax rate for this period was significantly impacted by the write-down of our investment in Venezuela, which was not tax-deductible, and by additional accrued local Venezuela taxes we recognized in our tax provision. See Note 2 to the condensed consolidated financial statements for further information. Additionally, our effective tax rate for this period was impacted by the lower corporate rate from U.S. tax reform. During the six months ended June 30, 2017, we recorded a total income tax benefit of $54 million on pre-tax losses of $58 million. Our effective tax rate for this period was impacted by a low level of earnings and a net $20 million tax benefit associated with global prior year audits. Our effective tax rates for both periods were also impacted by a 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 6 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 2017 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2017.

## Controls and procedures

As filed, 1,427 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, 2018 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 June 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Jul 27, 2018.
Source: SEC EDGAR, the filing index for accession 0000045012-18-000120. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.