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

- Company: [Halliburton Co](/companies/hal.md) (CIK 45012)
- Form: 10-Q
- Filed: 2018-10-26
- Accepted by EDGAR: Oct 26, 2018, 10:02 ET
- Period: 2018-09-30
- Accession: 0000045012-18-000168
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45012/000004501218000168/hal09302018-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45012/000004501218000168/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $6.17bn | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $18.06bn | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | $716.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $1.86bn | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-07-01 to 2018-09-30 | $100.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $367.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | $435.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $992.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.50 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $1.13 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $0.50 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $1.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 878,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 879,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $2.31bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $1.48bn | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $473.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2018-01-01 to 2018-09-30 | $200.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2018-09-30 | $11.44bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $25.75bn | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $4.95bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-09-30 | $16.73bn | us-gaap:Liabilities |
| Current portion of debt | at 2018-09-30 | $35.0m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2018-09-30 | $9.00bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,209 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 $6.2 billion during the third quarter of 2018, a 13% increase from the $5.4 billion of revenue generated during the third quarter of 2017. Total company operating income was $716 million during the third quarter of 2018, a 12% improvement compared to operating income of $642 million in the third quarter of 2017. Our Completion and Production segment revenue improved 18% and our Drilling and Evaluation segment revenue increased 5% from the third quarter of 2017. We also generated over $2.3 billion of operating cash flow during the first nine months of 2018. While we experienced significant year over year revenue and profitability growth, our third quarter revenue was flat and operating income decreased 9%, as compared to the second quarter of 2018, largely due to a softening North America market which impacted activity and pricing in the oilfield services industry. Our international business is showing signs of a steady recovery with 5% revenue growth, as compared to the second quarter of 2018, and higher revenue in every international region.

Our North America revenue increased 18% in the third quarter of 2018, as compared to the third quarter of 2017, outperforming a 9% increase in the average North American rig count. However, the United States land rig count was essentially flat from the second quarter to the third quarter as the market softened. A combination of offtake capacity constraints and our customers exhausting their budgets led to less demand for completion services than expected in the third quarter of 2018. This resulted in a 2% reduction in our North America revenue compared to the second quarter of 2018, primarily driven by lower pricing for our stimulation services in the United States land sector. We also incurred higher maintenance expense in our U.S. pressure pumping business during the third quarter of 2018, as compared to the second quarter of 2018, as we performed incremental maintenance in anticipation of increased completions activity in 2019. We are actively managing these costs, and we believe the temporary challenges we are facing in our North America business will continue through the end of the year with a rebound in 2019.

Our international revenue increased 7% in the third quarter of 2018, as compared to the third quarter of 2017, driven primarily by increased drilling and well intervention activity in the Middle East. While the international markets are continuing to improve, as further evidenced by a 5% growth in our international revenue compared to the second quarter of 2018, the markets are in the early stages of a recovery and pricing pressure remains a challenge in a competitive landscape. 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, we expect the temporary challenges related to pipeline capacity constraints and customer budget limitations to persist through the end of the year. Based on current feedback from customers, we expect operators to take extended breaks around the holidays during the last six weeks of the year, which, when combined with exhausted customer budgets, will reduce activity levels in the fourth quarter of 2018. We will continue to adjust our cost structure to market conditions, but we do not believe it is necessary to significantly reduce costs or infrastructure for a temporary slowdown in activity levels. We are actively maintaining our equipment and using this time to improve the condition of our fleet to position our North America land business for future success as the market improves. In 2019, we expect a rebound in activity from second half of 2018 levels as customer budgets are refreshed and offtake capacity expands, and we believe activity momentum will continue throughout the year.

Overall, we believe the North America market has strong fundamentals and we expect supportive commodity prices to encourage continued long-term growth. 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 our focus to maintain our market position, optimize pricing and utilization, pursue continued technology implementation and control costs.

Internationally, we believe the markets are improving and a recovery is underway. We are experiencing enhanced tender activity and are holding constructive conversations with our customers. We expect the international recovery to be focused, at least initially, on mature fields as customers broadly favor shorter cycle returns and lower risk projects in today’s environment. We believe we are well-positioned for continued growth as a result of the significant investments we made to grow our global footprint in the last cycle, which included increasing our product service line operations in various geographies, expanding our manufacturing capacity in Singapore and opening technology centers in Saudi Arabia, India and Brazil. We will continue to collaborate with our customers to improve their project economics and our profitability through advanced technology and increased operating efficiency.

During the first nine months of 2018, our capital expenditures were approximately $1.5 billion, an increase of 58% from the first nine months of 2017. These capital expenditures were predominantly 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 September 30, 2018, we had $2.1 billion of cash and equivalents 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 September 30, 2018, we had $2.1 billion of cash and equivalents, compared to $2.3 billion of cash and equivalents at December 31, 2017.

### Significant sources and uses of cash during the first nine months of 2018

#### Sources of cash:

\- Cash flows from operating activities were $2.3 billion.

\- We sold $102 million of investment securities, net of purchases.

#### Uses of cash:

\- Capital expenditures were $1.5 billion and were predominantly made in our Production Enhancement, Sperry Drilling, Artificial Lift, Cementing, and Wireline and Perforating product service lines.

\- We paid $473 million in dividends to our shareholders.

\- We paid $400 million to retire our senior notes which matured in August 2018.

\- Working capital (receivables, inventories and accounts payable) increased by a net $372 million, primarily due to increased business activity.

\- We repurchased approximately 4.8 million shares of our common stock under our share repurchase program at a total cost of approximately $200 million.

\- We paid $166 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 the remainder of 2018 is primarily directed towards our Production Enhancement and Sperry Drilling product service lines.

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 $5.5 billion remained authorized for repurchases as of September 30, 2018 and may be used for open market and other share purchases.

### Other factors affecting liquidity

*Financial position in current market.* As of September 30, 2018, we had $2.1 billion of cash and equivalents 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 for the remainder of 2018, 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 $1.9 billion of letters of credit, bank guarantees or surety bonds were outstanding as of September 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 nine 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 53% of consolidated revenue from the United States in the first nine 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 September 30 2018 | 2017 | Year Ended December 31 2017 |
| --- | ---: | ---: | ---: |
| Oil price - WTI (1) | $69.76 | $48.36 | $50.93 |
| Oil price - Brent (1) | 75.22 | 52.31 | 54.30 |
| Natural gas price - Henry Hub (2) | 2.93 | 3.15 | 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 |  |  |  |

15

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 2018 2017 | Nine Months Ended September 30 2018 2017 |
| --- | ---: | ---: |
| Land | 1,032 927 | 1,001 841 |
| Offshore (incl. Gulf of Mexico) | 19 19 | 18 20 |
| Total | 1,051 946 | 1,019 861 |
| Canada: |  |  |
| Land | 207 207 | 193 206 |
| Offshore | 2 1 | 2 1 |
| Total | 209 208 | 195 207 |
| International (excluding Canada): |  |  |
| Land | 792 749 | 781 748 |
| Offshore | 211 199 | 200 200 |
| Total | 1,003 948 | 981 948 |
| Worldwide total | 2,263 2,102 | 2,195 2,016 |
| Land total | 2,031 1,883 | 1,975 1,795 |
| Offshore total | 232 219 | 220 221 |
|  | Three Months Ended September 30 | Nine Months Ended September 30 |
| **Oil vs. Natural Gas** | 2018 2017 | 2018 2017 |
| United States (incl. Gulf of Mexico): |  |  |
| Oil | 864 760 | 830 691 |
| Natural gas | 187 186 | 189 170 |
| Total | 1,051 946 | 1,019 861 |
| Canada: |  |  |
| Oil | 141 115 | 125 110 |
| Natural gas | 68 93 | 70 97 |
| Total | 209 208 | 195 207 |
| International (excluding Canada): |  |  |
| Oil | 800 731 | 777 729 |
| Natural gas | 203 217 | 204 219 |
| Total | 1,003 948 | 981 948 |
| Worldwide total | 2,263 2,102 | 2,195 2,016 |
| Oil total | 1,805 1,606 | 1,732 1,530 |
| Natural gas total | 458 496 | 463 486 |

| Drilling Type United States (incl. Gulf of Mexico): | Three Months Ended September 30 2018 | 2017 | Nine Months Ended September 30 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Horizontal | 921 | 799 | 890 | 720 |
| Vertical | 63 | 70 | 61 | 72 |
| Directional | 67 | 77 | 68 | 69 |
| Total | 1,051 | 946 | 1,019 | 861 |

16

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 $86 per barrel in October 2018. The average WTI and Brent crude oil spot prices during the third quarter of 2018 were $70 per barrel and $75 per barrel, respectively.

In the United States Energy Information Administration (EIA) October 2018 "Short Term Energy Outlook," the EIA projects Brent prices to average $74 per barrel and $75 per barrel in 2018 and in 2019, respectively, while WTI prices are projected to average about $6 less per barrel for the same periods. Crude oil production in the United States is now projected to average 10.7 million barrels per day in 2018, a 14% increase from 2017. Additionally, the EIA projects that U.S. production will increase 10% in 2019, to average 11.8 million barrels per day. The International Energy Agency's (IEA) October 2018 "Oil Market Report" forecasts the 2018 global demand to average approximately 99.2 million barrels per day, which is up 1.3% 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 $2.99 per MMBtu in September 2018, essentially flat year over year. The EIA October 2018 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.99 per MMBtu in 2018 and $3.12 per MMBtu in 2019.

### North America operations

The average North America oil-directed rig count increased 130 rigs, or 15%, for the third quarter of 2018 as compared to the third quarter of 2017, while the average North America natural gas-directed rig count decreased 24 rigs, or 9% during the same period. During the third quarter of 2018, the average United States land rig count increased 11%, as compared to the third quarter of 2017, and completions activity continued to strengthen. However, the average United States land rig count was essentially flat from the second quarter to the third quarter of 2018 as the market softened. We are facing temporary challenges caused by offtake capacity constraints and customer budget exhaustion which have led to less demand for completion services, and, in turn, to negative pressure on our pricing. We believe these temporary challenges in our North America business will continue through the end of the year with a rebound in 2019.

### International operations

The average international rig count for the third quarter of 2018 was up 6% compared to the third quarter of 2017. While the international markets are continuing to improve, the markets are in the early stages of a recovery and pricing pressure remains a challenge in a competitive landscape. We expect the international recovery to be focused, at least initially, on mature fields as customers broadly favor shorter cycle returns and lower risk projects in today’s environment. We believe we are well-positioned for continued growth as a result of the significant investments we made to grow our global footprint in the last cycle.

*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 approximately 50,000 Bolívares per United States dollar at March 31, 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 September 30, 2018 Compared with Three Months Ended September 30, 2017

| REVENUE: Millions of dollars | Three Months Ended September 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $4,170 | $3,537 | $633 | 18% |
| Drilling and Evaluation | 2,002 | 1,907 | 95 | 5 |
| Total revenue | $6,172 | $5,444 | $728 | 13% |
| By geographic region: |  |  |  |  |
| North America | $3,739 | $3,163 | $576 | 18% |
| Latin America | 522 | 530 | (8) | (2) |
| Europe/Africa/CIS | 757 | 722 | 35 | 5 |
| Middle East/Asia | 1,154 | 1,029 | 125 | 12 |
| Total revenue | $6,172 | $5,444 | $728 | 13% |

| OPERATING INCOME: Millions of dollars | Three Months Ended September 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $613 | $527 | $86 | 16% |
| Drilling and Evaluation | 181 | 186 | (5) | (3) |
| Total | 794 | 713 | 81 | 11 |
| Corporate and other | (78) | (71) | (7) | (10) |
| Total operating income | $716 | $642 | $74 | 12% |

Consolidated revenue was $6.2 billion in the third quarter of 2018, an increase of $728 million, or 13%, as compared to the third quarter of 2017. Consolidated operating income was $716 million during the third quarter of 2018, a 12% increase from operating income of $642 million in the third quarter of 2017. These improvements were experienced across the majority of our product service lines, primarily associated with activity improvements in the United States land sector related to pressure pumping and artificial lift services, as well as drilling activity in the Middle East. Revenue from North America was 61% of consolidated revenue in the third quarter of 2018, compared to 58% of consolidated revenue in the third quarter of 2017.

### OPERATING SEGMENTS

#### Completion and Production

Completion and Production revenue in the third quarter of 2018 was $4.2 billion, an increase of $633 million, or 18%, from the third quarter of 2017. Operating income in the third quarter of 2018 was $613 million, an increase of $86 million, or 16%, from the third quarter of 2017. Improvements were led by increased activity across the majority of our product service lines in the United States land sector, particularly pressure pumping activity, artificial lift and specialty chemicals. Additionally, results improved due to higher pressure pumping and pipeline services activity in Europe/Africa/CIS, coupled with increased well intervention activity in the Middle East. Partially offsetting these increases were lower stimulation activity in Canada and reduced completion tool sales in Nigeria.

#### Drilling and Evaluation

Drilling and Evaluation revenue in the third quarter of 2018 was $2.0 billion, an increase of $95 million, or 5%, from the third quarter of 2017. Increased drilling and logging services in the United States land sector and Middle East/Asia were partially offset by lower drilling and offshore testing activity in Latin America. Operating income in the third quarter of 2018 was $181 million, a decrease of $5 million, or 3%, compared to the third quarter of 2017. Lower profitability for drilling and logging services in Europe/Africa/CIS was partially offset by improvements in drilling and logging services in Middle East/Asia.

### GEOGRAPHIC REGIONS

#### North America

North America revenue in the third quarter of 2018 was $3.7 billion, an 18% increase compared to the third 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 higher activity in pressure pumping, artificial lift, specialty chemicals, and drilling services. These increases were partially offset by lower stimulation activity in Canada.

#### Latin America

Latin America revenue in the third quarter of 2018 was $522 million, a 2% decrease compared to the third quarter of 2017, resulting primarily from reduced activity in Venezuela and Mexico and lower testing activity in Brazil, partially offset by increased activity for pressure pumping and well intervention services in Argentina.

#### Europe/Africa/CIS

Europe/Africa/CIS revenue in the third quarter of 2018 was $757 million, a 5% increase compared to the third quarter of 2017, due to increased activity throughout the region, primarily drilling fluids activity in the North Sea, partially offset by activity reductions in Angola.

#### Middle East/Asia

Middle East/Asia revenue in the third quarter of 2018 was $1.2 billion, a 12% increase compared to the third quarter of 2017, primarily resulting from increases in drilling and well intervention services in the Middle East and project management activity in India.

### NONOPERATING ITEMS

*Effective tax rate*. During the three months ended September 30, 2018, we recorded a total income tax provision of $100 million on pre-tax income of $534 million, resulting in an effective tax rate of 18.8%. Our effective tax rate for this period was impacted by certain discrete tax benefits and the lower corporate rate from U.S. tax reform. 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%. Our effective tax rates for both periods were also impacted by a geographic mix of earnings for the respective periods.

### Nine Months Ended September 30, 2018 Compared with Nine Months Ended September 30, 2017

| REVENUE: Millions of dollars | Nine Months Ended September 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $12,141 | $9,273 | $2,868 | 31% |
| Drilling and Evaluation | 5,918 | 5,407 | 511 | 9 |
| Total revenue | $18,059 | $14,680 | $3,379 | 23% |
| By geographic region: |  |  |  |  |
| North America | $11,090 | $8,164 | $2,926 | 36% |
| Latin America | 1,458 | 1,501 | (43) | (3) |
| Europe/Africa/CIS | 2,199 | 2,005 | 194 | 10 |
| Middle East/Asia | 3,312 | 3,010 | 302 | 10 |
| Total revenue | $18,059 | $14,680 | $3,379 | 23% |

| OPERATING INCOME: Millions of dollars | Nine Months Ended September 30 2018 | 2017 | Favorable (Unfavorable) | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Completion and Production | $1,782 | $1,071 | $711 | 66% |
| Drilling and Evaluation | 560 | 433 | 127 | 29 |
| Total | 2,342 | 1,504 | 838 | 56 |
| Corporate and other | (218) | (251) | 33 | 13 |
| Impairments and other charges | (265) | (262) | (3) | (1) |
| Total operating income | $1,859 | $991 | $868 | 88% |

Consolidated revenue was $18.1 billion in the first nine months of 2018, an increase of $3.4 billion, or 23%, as compared to the first nine 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 61% of consolidated revenue in the first nine months of 2018, compared to 56% of consolidated revenue in the first nine months of 2017.

Consolidated operating income was $1.9 billion in the first nine months of 2018, compared to operating income of $991 million during the first nine months of 2017, an 88% increase primarily due to improved pressure pumping activity in North America. Operating results in the first nine months of 2018 were impacted by $265 million of impairments and other charges related to Venezuela, while operating results in the first nine months of 2017 included a $262 million 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 nine months of 2018 was $12.1 billion, an increase of $2.9 billion, or 31%, compared to the first nine months of 2017. Operating income in the first nine months of 2018 was $1.8 billion, an increase of $711 million, or 66%, compared to the first nine months of 2017. These 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, coupled with improved pressure pumping activity in Europe/Africa/CIS.

#### Drilling and Evaluation

Drilling and Evaluation revenue in the first nine months of 2018 was $5.9 billion, an increase of $511 million, or 9%, compared to the first nine months of 2017. Operating income in the first nine months of 2018 was $560 million, an increase of $127 million, or 29%, compared to the first nine months of 2017. These increases were primarily due to increased drilling activity in the United States land sector and the Middle East. 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 nine months of 2018 was $11.1 billion, a 36% increase compared to the first nine months of 2017. These results were driven by improved customer demand in our United States land sector, primarily related to pressure pumping services, artificial lift, and drilling services.

#### Latin America

Latin America revenue in the first nine months of 2018 was $1.5 billion, a 3% decrease compared to the first nine months of 2017, resulting primarily from reduced activity in Venezuela, as well as decreases in drilling and project management activity in Mexico. These results were partially offset by increases in the majority of our product service lines in Argentina.

#### Europe/Africa/CIS

Europe/Africa/CIS revenue in the first nine months of 2018 was $2.2 billion, a 10% increase from the first nine 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 nine months of 2018 was $3.3 billion, a 10% increase from the first nine months 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 $218 million in the first nine months of 2018 compared to $251 million in the first nine months of 2017, which included approximately $42 million of one-time charges for executive compensation and litigation settlements primarily associated with the resolution of an SEC investigation.

*Impairments and other charges* were $265 million in the nine months ended September 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 nine months ended September 30, 2017, associated with a fair market value adjustment related to Venezuela.

### NONOPERATING ITEMS

*Interest expense, net* was $417 million in the first nine months of 2018, as compared to $478 million of net interest expense in the first nine 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 nine months ended September 30, 2018, we recorded a total income tax provision of $367 million on pre-tax income of $1.4 billion, resulting in an effective tax rate of 27.1%. 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 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%. 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, 1,437 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, 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 September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Oct 26, 2018.
Source: SEC EDGAR, the filing index for accession 0000045012-18-000168. Last ingested by Listed: Nov 2, 2026, 13:24 ET. No prices; not investment advice.