Halliburton Co: Form 10-Q for the period ended Sep 30, 2023

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the condensed consolidated financial statements included in "Item 1. Financial Statements" contained herein.

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.

• Completion and Production delivers cementing, stimulation, intervention, pressure control, artificial lift, specialty chemicals, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Artificial Lift, Multi-Chem, and Pipeline and Process Services.
• Drilling and Evaluation provides field and reservoir modeling, drilling, fluids, 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 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 in the United States, Malaysia, Singapore, and the United Kingdom. With approximately 48,000 employees, we operate in more than 70 countries around the world, and our corporate headquarters is in Houston, Texas.

Our value proposition is to collaborate and engineer solutions to maximize asset value for our customers. We work to achieve strong cash flows and returns for our shareholders by delivering technology and services that improve efficiency, increase recovery, and maximize production for our customers. Our strategic priorities are to:

• International: Allocate our capital to the highest return opportunities and increase our international growth in both onshore and offshore markets.
• North America: Drive better pricing, increased efficiency, and higher margin through utilization of our automated and intelligent fracturing technologies and increased market penetration of our premium low-emissions electronic fracturing equipment.
• Digital: Continue to drive differentiation and efficiencies through the deployment and integration of digital and automation technologies, both internally and for our customers.
• Capital efficiency: Maintain our capital expenditures in the range of 5-6% of revenue while focusing on technological advancements and process changes that reduce our manufacturing and maintenance costs and improve how we move equipment and respond to market opportunities.
• Sustainability and energy mix transition: Continue to:
• Leverage the increasing number of participants in and scope of Halliburton Labs to gain insight into developing value chains in the energy mix transition;
• Develop and deploy solutions to help oil and gas operators lower their emissions while also using our existing technologies in renewable energy applications;
• Develop technologies and solutions to lower our own emissions; and
• Grow our participation in the entire life cycle of carbon capture and storage, hydrogen, and geothermal projects globally.

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The following charts depict the revenue split between our two operating segments and our four primary geographic regions for the quarter ended September 30, 2023.

Market conditions

Commodity price volatility continued during the third quarter of 2023 driven by inflationary pressures, changes to OPEC+ production levels, supply chain shortages, demand uncertainty, recessionary fears, and geopolitical conflicts. On June 4, 2023, Saudi Arabia announced it would reduce July production by 1 million barrels per day and subsequently announced the reduction would extend through the end of 2023.

During the third quarter of 2023, the West Texas Intermediate (WTI) crude oil price averaged approximately $82 per barrel and the Brent crude oil price averaged approximately $87 per barrel. Both of these prices were more than 10% above the average price per barrel during the second quarter of 2023 but remained well below the average price per barrel of $93 and $101 respectively, as compared to the third quarter of 2022. The average Henry Hub natural gas price during the third quarter of 2023 was $2.59 per million BTU, which is also an increase from the average price during the second quarter of 2023, but well below the average price of $7.99 during the third quarter of 2022. While U.S. land rig counts generally increased throughout 2022, they have generally decreased throughout 2023. Pricing and U.S. land rig counts continued to contribute to softness in the market for energy services generally in North America and particularly in gas basins during the third quarter of 2023. The United States Energy Information Administration (EIA)'s October 2023 forecast has Brent crude oil spot price averaging $93 per barrel for the fourth quarter of 2023, a $13 per barrel increase over the price they forecast last quarter.

Globally, we continue to be impacted by increased supply chain lead times for the supply of select raw materials. We monitor market trends and work to mitigate cost impacts through economies of scale in global procurement, technology modifications, and efficient sourcing practices. Also, while we have been impacted by inflationary cost increases, primarily related to chemicals, cement, and logistics costs, we generally try to pass much of those increases on to our customers and we believe we have effective solutions to minimize the operational impact.

Financial results

The following graph illustrates our revenue and operating margins for each operating segment for the third quarter of 2022 and 2023.

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During the third quarter of 2023, we generated total company revenue of $5.8 billion, an 8% increase as compared to the third quarter of 2022. We recorded operating income of $1.0 billion during the third quarter of 2023 compared to operating income of $846 million during the third quarter of 2022. Our Completion and Production segment revenue increased 11% in the third quarter of 2023 as compared to the third quarter of 2022, primarily due to improved stimulation activity internationally, higher completion tool sales globally, and increased cementing activity in the Eastern Hemisphere. Our Drilling and Evaluation segment revenue increased 4% in the third quarter of 2023 as compared to the third quarter of 2022, driven primarily by improvements in fluids and wireline activity globally and higher drilling services internationally.

In North America, revenue remained flat in the third quarter of 2023, as compared to the third quarter of 2022, driven by a decline in pressure pumping services in North America land partially offset by increased activity across multiple product service lines in the U.S. Gulf of Mexico, and higher wireline activity in North America land. The North America average rig count decreased 13% in the third quarter of 2023 as compared to the third quarter of 2022.

Internationally, revenue increased 17% in the third quarter of 2023, as compared to the third quarter of 2022, largely driven by improved stimulation activity, higher completion tool sales and increased fluids activity across all regions. Also improving were testing services and wireline activity across the regions and cementing activity in the Eastern Hemisphere. These improvements were partially offset by lower project management activity across all regions. The international average rig count increased 11% in the third quarter of 2023 as compared to the third quarter of 2022.

Sustainability and Energy Advancement

We continue to pursue our strategic initiatives around advancing cleaner, affordable energy, and supporting sustainable energy advancements using innovation and technology to decarbonize both our and our customers' operations. This includes the continued development and deployment of solutions designed to help oil and gas operators lower their environmental impact while also using our existing technologies in sustainable energy applications.

Halliburton Labs, our clean energy accelerator, continues to provide us insight into developing value chains in the energy mix transition and opportunities to assist early stage companies to enable them to achieve scaling milestones. Halliburton Labs had 25 participants and alumni as of the end of the third quarter of 2023.

Our operating performance and liquidity are described in more detail in "Liquidity and Capital Resources" and “Business Environment and Results of Operations.”

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LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2023, we had $2.0 billion of cash and equivalents, compared to $2.3 billion of cash and equivalents at December 31, 2022.

Significant sources and uses of cash during the first nine months of 2023

Sources of cash:

• Cash flows from operating activities were $2.0 billion. This included a negative impact from the primary components of our working capital (receivables, inventories, and accounts payable) of a net $798 million, primarily associated with increased receivables and inventory.

Uses of cash:

• Capital expenditures were $980 million.
• We paid $546 million for the repurchase of 16.1 million shares of our common stock.
• We paid $433 million of dividends to our shareholders.
• In August of 2023, we repurchased $150 million aggregate principal amount of various series of our outstanding debt.

Future sources and uses of cash

We manufacture most of our own equipment, which provides us with some flexibility to increase or decrease our capital expenditures based on market conditions. We currently expect capital spending for 2023 to be within our target of approximately 5-6% of revenue. We believe this level of spend will allow us to invest in our key strategic areas. However, we will continue to maintain capital discipline and monitor the rapidly changing market dynamics, and we may adjust our capital spend accordingly.

While we maintain focus on liquidity and debt reduction, we are also focused on providing cash returns to our shareholders. Our quarterly dividend rate is $0.16 per common share, or approximately $144 million. In January of 2023, our Board of Directors approved a capital return framework with a goal of returning at least 50% of our annual free cash flow to shareholders through dividends and share repurchases and we expect our returns to shareholders will be in line with our capital return framework for 2023.

We may utilize share repurchases as part of our capital return framework. Our Board of Directors has authorized a program to repurchase our common stock from time to time. We repurchased 5.1 million shares of common stock during the third quarter of 2023 under this program. Approximately $4.3 billion remained authorized for repurchases as of September 30, 2023 and may be used for open market and other share purchases.

During the second quarter of 2023, we began our migration to SAP S4 and expect to complete by the end of 2025. The total project investment is estimated to cost approximately $250 million and we have spent $36 million to date. We believe the new system will provide important efficiency benefits, cost savings, enhanced visibility to our operations, and advanced analytics that will benefit us and our customers.

Other factors affecting liquidity

Financial position in current market. As of September 30, 2023, we had $2.0 billion of cash and equivalents and $3.5 billion of available committed bank credit under a revolving credit facility with an expiration date of April 27, 2027. We believe we have a manageable debt maturity profile, with approximately $475 million coming due beginning in 2025 through 2027. 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 our global cash needs, including capital expenditures, working capital investments, shareholder returns, if any, and contingent liabilities.

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Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $2.4 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of September 30, 2023. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization; however, none of these triggering events have occurred. As of September 30, 2023, we had no material off-balance sheet liabilities and were not required to make any material cash distributions to our unconsolidated subsidiaries.

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. In July our long-term debt rating with Moody’s Investors Service (Moody's) was upgraded to A3 from Baa1 and the short-term debt rating remained P-2, 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.

Receivables from our primary customer in Mexico accounted for approximately 10% of our total receivables as of September 30, 2023. While we have experienced payment delays from our primary customer in Mexico, the amounts are not in dispute and we have not historically had, and we do not expect, any material write-offs due to collectability of receivables from this customer.

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Table of Contents Part I. Item 2 | Business Environment and Results of Operations

BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in more than 70 countries throughout the world to provide a comprehensive range of services and products to the energy industry. Our revenue is generated 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. Based upon the location of the services provided and products sold, 45% of our consolidated revenue was from the United States for both the nine months ended September 30, 2023 and 2022. No other country accounted for more than 10% of our revenue.

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 and our customers' expectations about future prices, global oil supply and demand, completions intensity, the world economy, the availability of capital, government regulation, and global stability, which together drive worldwide drilling and completions activity. Additionally, during 2023, we generally expect that many of our customers in North America will continue their strategy of operating within their cash flows and generating returns rather than prioritizing production growth. Lower oil and natural gas prices usually translate into lower exploration and production budgets and lower rig count, while the opposite is usually 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 table below shows the average prices for WTI crude oil, United Kingdom Brent crude oil, and Henry Hub natural gas.

Three Months Ended September 30 Year Ended December 31

2023 2022 2022

Oil price - WTI (1) $82.30 $93.18 $96.04

Oil price - Brent (1) 86.66 100.71 100.78

Natural gas price - Henry Hub (2) 2.59 7.99 6.45

(1) Oil price measured in dollars per barrel.

(2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu.

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

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Table of Contents Part I. Item 2 | Business Environment and Results of Operations

Business outlook

According to the EIA October 2023 "Short Term Energy Outlook", the Brent spot price is expected to average $93 per barrel for the fourth quarter of 2023, a 5% increase when compared to the Q4 2022 price of $88 per barrel. According to EIA, the WTI prices are expected to average $88 per barrel in the fourth quarter of 2023, a 6% increase when compared to the Q4 2022 price of $83 per barrel. The EIA's full year 2024 average projection for Brent and WTI oil prices is $88 per barrel and $83 per barrel, respectively, resulting in a 4% increase in each price, when compared to the full year 2023.

The EIA October 2023 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.95 per MMBtu during the fourth quarter of 2023, a 47% decrease when compared to the Q4 2022 price of $5.55 per MMBtu. The EIA's full year 2024 average projection for Henry Hub natural gas prices is $3.24 per MMBtu resulting in a 26% increase when compared to the full year 2023 price of $2.58 per MMBtu.

Per OPEC's 2023 World Oil Outlook 2045 report, oil demand for 2024 is projected to grow by 2.2 million barrels per day. The EIA expected crude oil production for 2024 is 13.16 million barrels per day, a 3% increase when compared to 2023.

We continue to expect that oil and gas demand will grow over the next several years, despite the actions taken by central banks in an attempt to control inflation by increasing interest rates and the resulting concern about a potential economic slowdown. We believe the demand will be driven by economic expansion, energy security concerns, and population growth. Oil and gas continues to demonstrate its critical role in the global economy and meeting long term demand requires sustained capital investment. We believe many years of increased investment in existing and new sources of production is the only solution to increase supply and that production will be needed from conventional and unconventional, deep-water and shallow-water, and short and long-cycle projects.

We expect that upstream investment around development activity will remain strong in 2024 and for the foreseeable future, and that demand for our products and services will grow accordingly. We expect lower North America Land activity for the fourth quarter of 2023 due to seasonality and the holidays and we expect that our international results will deliver high teens year-on-year growth.

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Table of Contents Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (QTD)

RESULTS OF OPERATIONS IN 2023 COMPARED TO 2022

Three Months Ended September 30, 2023 Compared with Three Months Ended September 30, 2022

Operating Segments

Completion and Production

Completion and Production revenue in the third quarter of 2023 was $3.5 billion, an increase of $351 million, or 11%, when compared to the third quarter of 2022. Operating income in the third quarter of 2023 was $746 million, an increase of $163 million, or 28%, when compared to the third quarter of 2022. These results were driven by increased stimulation activity internationally, higher completion tool sales globally, and improved cementing activity in the Eastern Hemisphere. Improved pricing and higher efficiencies were offset by lower stimulation activity in North America land.

Drilling and Evaluation

Drilling and Evaluation revenue in the third quarter of 2023 was $2.3 billion, an increase of $96 million, or 4%, when compared to the third quarter of 2022. Operating income in the third quarter of 2023 was $378 million, an increase of $53 million, or 16%, when compared to the third quarter of 2022. These results were driven by improvements in fluids and wireline activity globally and higher drilling services internationally. These improvements were partially offset by lower project management activity in Saudi Arabia.

Geographic Regions

North America

North America revenue in the third quarter of 2023 was $2.6 billion, or relatively flat compared to the third quarter of 2022. Improvements across multiple product service lines in the U.S. Gulf of Mexico, and higher wireline activity in North America land, were offset by lower pressure pumping services and drilling-related activity in North America land.

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Table of Contents Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (QTD)

Latin America

Latin America revenue in the third quarter of 2023 was $1.0 billion, a 25% increase compared to the third quarter of 2022, due to increased completion tool sales and higher well construction activity in Brazil, higher pressure pumping services and increased fluids activity in Argentina, and improved activity across multiple product service lines in Mexico and Colombia. Partially offsetting these improvements were lower well construction services and decreased project management in Suriname.

Europe/Africa/CIS

Europe/Africa/CIS revenue in the third quarter of 2023 was $734 million, a 15% increase compared to the third quarter of 2022. This increase was primarily driven by improved activity across multiple product service lines in Africa, higher well construction activity in Norway, and with increased completion tool sales, higher software sales, and improved cementing activity in Europe and Nigeria. These increases were partially offset by lower fluids and testing activity in Europe and decreased wireline and well intervention services in Norway.

Middle East/Asia

Middle East/Asia revenue in the third quarter of 2023 was $1.4 billion, a 14% increase compared to the third quarter of 2022, resulting from increased wireline activity, higher completion tool sales, and improved testing and drilling-related services in Saudi Arabia, along with increased well construction services in the United Arab Emirates, and higher cementing and fluids activity in Indonesia. Partially offsetting these improvements was lower project management activity in Saudi Arabia.

Other Operating Items

SAP S4 Upgrade Expense. As previously mentioned, in the second quarter of 2023 we began our migration to SAP S4, which we expect to complete by the end of 2025. During the third quarter of 2023, we recognized $23 million of expense on our SAP S4 migration.

Nonoperating Items

Effective tax rate. During the three months ended September 30, 2023, we recorded a total income tax provision of $192 million on a pre-tax income of $916 million, resulting in an effective tax rate of 21.0% for the quarter. During the three months ended September 30, 2022, we recorded a total income tax provision of $156 million on a pre-tax income of $705 million, resulting in an effective tax rate of 22.2% for the quarter.

Internal Revenue Service Notice of Proposed Adjustment. We are subject to taxes in the United States and in numerous jurisdictions where we operate or where our subsidiaries are organized. Our tax returns are routinely subject to examination by the taxing authorities in the jurisdictions where we file tax returns. In most cases we are no longer subject to examination by tax authorities for years before 2010. The only significant operating jurisdiction that has tax filings under review or subject to examination by the tax authorities is the United States. Our United States federal income tax filings for tax years 2016 through 2021, including carry back of 2016 net operating losses to 2014, are currently under review or remain open for review by the Internal Revenue Service (the IRS).

On September 28, 2023, we received a Notice of Proposed Adjustment (NOPA) from the IRS covering our 2016 US tax return. The NOPA proposed an adjustment to reclassify approximately 95% of the $3.5 billion termination fee paid to Baker Hughes in 2016 from an ordinary expense deduction to a capital loss. The termination fee was paid to Baker Hughes under the merger agreement after antitrust regulators in multiple jurisdictions failed to approve our proposed merger. It is common commercial practice to include a termination fee in a merger agreement to compensate the target for damages incurred when the acquisition does not go forward. The IRS’s long-understood position at the time of the payment had been to treat such payments as an ordinary and necessary business expense. We strongly disagree with the proposed adjustment on both a factual and legal basis, and we plan to vigorously contest it.

We expect that resolving this dispute will take substantial time. Before year-end 2023, we plan to initiate the IRS administrative appeals process, which may take more than 12 months to complete. Failing a resolution through that process, the matter would ultimately be resolved by the United States federal courts.

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Table of Contents Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (QTD)

We regularly assess the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of our tax reserves, and we believe our income tax reserves are appropriately provided for all open tax years. We cannot assure you that the matter will be determined in our favor or against us, and if the matter is ultimately determined unfavorably to us, it could have a material adverse impact on our results of operations and cash flows. Based on tax attributes currently available, we estimate that, should the IRS's position prevail through its appellate process and subsequent litigation, the proposed adjustment could result in cash taxes due of approximately $650 million (plus interest thereon in the case of amounts due for previous tax years). Our estimates are calculated under current tax law and on the bases of our assumptions regarding taxable income and loss and other tax attributes over the relevant period, which law could change and which assumptions could and likely will differ materially from actual results. In any event, no payment of any additional tax is currently required, nor do we anticipate that the proposed adjustment would materially and adversely impact our ability to meet our expected uses of cash, including future capital expenditures, working capital investments, and scheduled debt repayments, or our ability to return cash to shareholders, even if a final determination of the matter is reached that is adverse to us.

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Table of Contents Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (YTD)

Nine Months Ended September 30, 2023 Compared with Nine Months Ended September 30, 2022

Operating Segments

Completion and Production

Completion and Production revenue in the first nine months of 2023 was $10.4 billion, an increase of $2.0 billion, or 23%, compared to the first nine months of 2022. Operating income for the segment in the first nine months of 2023 was $2.1 billion, an increase of $741 million, or 54%, compared to the first nine months of 2022. These results were largely driven by higher utilization and pricing for pressure pumping services in North America land and higher completion tool sales globally. Also improving was artificial lift activity globally.

Drilling and Evaluation

Drilling and Evaluation revenue in the first nine months of 2023 was $6.9 billion, an increase of $592 million, or 9%, compared to the first nine months of 2022. Operating income for the segment in the first nine months of 2023 was $1.1 billion, an increase of $218 million, or 24%, compared to the first nine months of 2022. These results were driven by increased drilling-related services and higher wireline activity globally, and improved project management activity in Mexico. These improvements were partially offset by lower project management activity in Saudi Arabia.

Both segment results were impacted in the first nine months of 2023 when compared to the first nine months of 2022, as a result of the sale of our Russian operations during the third quarter of 2022.

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Table of Contents Part I. Item 2 | Results of Operations in 2023 Compared to 2022 (YTD)

Geographic Regions

North America

North America revenue in the first nine months of 2023 was $8.1 billion, a 16% increase compared to the first nine months of 2022, largely driven by higher activity and pricing primarily associated with pressure pumping and wireline activity in North America land and the U.S. Gulf of Mexico and increased fluids activity across the region. Improved artificial lift activity in North America land along with higher completion tool sales in the U.S. Gulf of Mexico also contributed to this increase.

Latin America

Latin America revenue in the first nine months of 2023 was $3.0 billion, a 31% increase compared to the first nine months of 2022, resulting primarily from improvements across multiple product service lines in Mexico, Brazil, and Argentina. Partially offsetting these improvements was lower project management activity in Colombia, Ecuador, and Suriname.

Europe/Africa/CIS

Europe/Africa/CIS revenue in the first nine months of 2023 was $2.1 billion, a 3% increase compared to the first nine months of 2022 resulting primarily from increased activity across all product service lines in Africa, higher drilling-related services in Norway and Nigeria, and improved cementing activity and completion tool sales in the Caspian Area. Partially offsetting these increases was the sale of our Russian operations during the third quarter of 2022, as well as lower testing services, reduced wireline and cementing activity, and lower completion tool sales in Norway and reduced drilling-related services in the Caspian area.

Middle East/Asia

Middle East/Asia revenue in the first nine months of 2023 was $4.2 billion, a 21% increase compared to the first nine months of 2022, resulting primarily from increased activity across multiple product service lines in Saudi Arabia, United Arab Emirates, Qatar, and Indonesia, higher drilling services in Thailand, and improved project management activity in Kuwait and Iraq. Partially offsetting these improvements was lower project management activity in Saudi Arabia.

Other Operating Items

SAP S4 Upgrade Expense. As previously mentioned, in the second quarter of 2023 we began our migration to SAP S4, which we expect to complete by the end of 2025. During the nine months ended September 30, 2023, we recognized expense of $36 million on our SAP S4 migration.

Impairments and other charges. During the nine months ended September 30, 2022, we recognized a pre-tax charge of $366 million, primarily related to a $344 million write down of all our net assets in Russia as a result of our decision in the second quarter of 2022 to market our Russia operations for sale due to the additional sanctions enacted against Russia arising from the conflict in Ukraine. In the first quarter of 2022, we recognized a pre-tax charge of $22 million to write down all of our assets in Ukraine, including $16 million in receivables, due to the ongoing conflict between Russia and Ukraine.

Nonoperating Items

Argentina Blue Chip Swap. The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. The execution of certain trades known as Blue Chip Swaps, effectively results in a parallel U.S. dollar exchange rate. This parallel rate, which cannot be used as the basis to remeasure our net monetary assets in U.S. dollars under U.S. GAAP, was 101% higher than Argentina's official exchange rate at June 30, 2023. During the three months ended June 30, 2023, we entered into Blue Chip Swap transactions, which resulted in a $104 million pre-tax loss on investment.

Loss on early extinguishment of debt. During the nine months ended September 30, 2022, we recorded a $42 million loss on the early redemption of $600 million aggregate principal amount of our 3.8% senior notes, which included premiums and unamortized expenses.

Effective tax rate. During the nine months ended September 30, 2023, we recorded a total income tax provision of $533 million on a pre-tax income of $2.5 billion, resulting in an effective tax rate of 21.1%. During the nine months ended September 30, 2022, we recorded a total income tax provision of $338 million on pre-tax income of $1.3 billion, resulting in an effective tax rate of 26.6%. The effective tax rate for the nine months ended September 30, 2023 was lower than the nine months ended September 30, 2022 primarily due to the impact on our effective tax rate for the first nine months of 2022 of our decision to sell our Russian operations and a corresponding increase in the valuation allowance on foreign tax credits.

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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 our statements and 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.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2022 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2022.

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, 2023 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, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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