HOUSTON, Oct. 24 - Halliburton (NYSE: HAL) announced today that both income from continuing operations and net income in the third quarter of 2005 were $499 million, or $0.95 per diluted share. This compares to income from continuing operations of $186 million, or $0.42 per diluted share, in the third quarter of 2004. Net loss for the third quarter of 2004 of $44 million, or $0.09 per diluted share, included a net loss from discontinued operations of $230 million, or $0.51 per diluted share, related to the asbestos and silica settlement.
Consolidated revenue in the third quarter of 2005 was $5.1 billion, up 6% from the third quarter of 2004. This increase was largely attributable to higher activity in the Energy Services Group (ESG). This was partially offset by lower revenue in KBR on government services projects in the Middle East, as well as offshore construction and other projects nearing completion in the Energy and Chemicals (E&C) segment.
Consolidated operating income was $690 million in the third quarter of 2005 compared to $342 million in the third quarter of 2004. ESG experienced strong performance reflecting increased rig activity, higher utilization of assets, and increased pricing. Operating income in the third quarter of 2004 was positively impacted by a $40 million gain related to the sale of ESG's surface well testing operations. KBR's performance improved in both the Government and Infrastructure (G&I) segment and the E&C segment. G&I results included $85 million of operating income related to the sale of KBR's interest in a toll road. The consolidated negative impact of the hurricanes on Halliburton in the third quarter of 2005 was approximately $33 million pretax income, or $0.05 per diluted share after tax.
"We are pleased with the third quarter performance of the ESG and KBR, as both are maintaining the momentum of the strong earnings we experienced in the first half of the year," said Dave Lesar, chairman, president, and chief executive officer of Halliburton. "Continued strength in the North American natural gas drilling market contributed to this growth. Despite the impact of the hurricanes, ESG posted record revenue and operating income for the quarter and increased operating margins to 21.8%, up from 21.1% in the second quarter of 2005. KBR's continued strong financial performance and recent gas monetization contract wins give us a competitive edge in a growing arena where we are already well positioned."
Energy Services Group
ESG posted record revenue of $2.6 billion in the third quarter of 2005, a $489 million or 23% increase over the third quarter of 2004. ESG also posted record operating income of $566 million, up $152 million or 37% from the same period in the prior year. The negative impact on ESG's results from hurricanes in the Gulf of Mexico during the third quarter of 2005 was approximately $28 million of pretax income, or $0.04 per diluted share after tax, primarily due to the temporary suspension of work related to damaged and lost customer rigs. The negative impact from hurricanes in the third quarter of 2004 was approximately $6 million of pretax income, or $0.01 per diluted share after tax. ESG's operating margin was 21.8% during the third quarter of 2005, despite the impact of the hurricanes.
Production Optimization operating income for the third quarter of 2005 was $263 million, an increase of $41 million or 19% over the third quarter of 2004. Production enhancement services operating income increased 67%, driven by strong demand for well stimulation services in natural gas applications, increased utilization of crews and assets, and improved pricing in the United States. Completion tools operating income increased 7% due to higher rig activity in Saudi Arabia. Partially offsetting this increase were declines in activity in Mexico and Venezuela. WellDynamics operating income for the third quarter of 2005 improved over the prior year quarter due to manufacturing efficiencies and strong sales of its SmartWell(R) technology. Hurricanes negatively impacted Production Optimization operating income by approximately $8 million in the third quarter of 2005. Operating income in the third quarter of 2004 included a $40 million gain on the sale of surface well testing operations.
Fluid Systems operating income for the third quarter of 2005 was $139 million, a $26 million or 23% increase over the third quarter of 2004. Cementing services operating income increased 29% due to higher drilling activity, improved pricing, and increased asset utilization in the United States, partially offset by lower activity in Mexico. Baroid Fluid Services operating income grew 11% on higher activity and improved pricing in Africa, as well as on strong natural gas operations in the United States. This was partially offset by lower activity in Mexico and Brazil. Hurricanes in the third quarter of 2005 negatively impacted Fluid Systems operating income by $15 million.
Drilling and Formation Evaluation operating income for the third quarter of 2005 was $129 million, a $67 million or 108% increase over the prior year third quarter. All regions showed earnings growth with international operations driving 66% of the increase. Pricing improvement was evident across all product lines. Sperry Drilling Services operating income increased 109% benefiting from increased directional drilling activity in the Middle East and Latin America, as well as in Canada and the United States. Logging services operating income increased 68% due to increased activity in the United States and strong growth in Latin America and the Middle East. Security DBS Drill Bits operating income tripled, reflecting strong roller cone and fixed cutter bit sales in the United States, Canada, Latin America and the North Sea, combined with the realization of manufacturing efficiencies. Hurricanes in the third quarter of 2005 negatively impacted Drilling and Formation Evaluation operating income by $5 million.
Digital and Consulting Solutions operating income in the third quarter of 2005 was $35 million, an $18 million or 106% increase as compared to the prior year period, primarily driven by higher production consulting and data management services revenue.
KBR
KBR revenue for the third quarter of 2005 was $2.5 billion, a 7% decrease compared to the third quarter of 2004, primarily due to decreased military support activities in Iraq. Operating income for the third quarter of 2005 was $150 million compared to an operating loss of $50 million in the prior year quarter. KBR incurred $5 million in pretax expenses, or $0.01 per diluted share after tax, related to the Gulf of Mexico hurricanes during the third quarter of 2005.
Government and Infrastructure operating income for the third quarter of 2005 was $149 million compared to an operating loss of $6 million in the third quarter of 2004. Operating income for the third quarter of 2005 included $85 million in income on the sale of the toll road interest. Iraq-related operating income increased primarily due to the favorable settlement of government audits of fuel costs and other disputed issues.
Energy and Chemicals operating income was $1 million in the third quarter of 2005 compared to an operating loss of $44 million in the third quarter of 2004. Third quarter of 2005 results were impacted by $47 million of charges related to an Algerian joint venture and an additional $23 million loss on an Algerian gas processing plant project. The operating loss in the third quarter of 2004 included $59 million of project losses on two projects: a gas processing plant in Algeria and a floating production, storage, and offloading vessel project in Indonesia. There was also $14 million of charges related to the restructuring of KBR in the third quarter of 2004.
Halliburton's Iraq-related work contributed approximately $1.2 billion in revenue in the third quarter of 2005 and $44 million of operating income, or a 3.7% margin, before corporate expenses and taxes.
Technology and Significant Achievements
Halliburton made a number of advances in technology and new contract awards.
Energy Services Group new technologies and contract awards:
* Halliburton's Sperry Drilling Services commercialized the industry's
first 4 3/4" formation testing-while-drilling suite (GeoTap(R)) in
the Gulf of Mexico in conjunction with Sperry's slimhole rotary
steerable system, real-time resistivity, gamma, neutron, density,
sonic, and vibration sensors. The operator chose to include the
slimhole GeoTap(R) tester in the bottomhole assembly as high wellbore
inclinations made wireline logging risky and expensive. Using
the new slimhole bottomhole assembly technology saved the operator
an estimated four days relative to the use of conventional wireline
techniques.
* Halliburton introduced its new Zero-D(TM) diesel free liquid gel
concentrates for hydraulic fracturing. This industry advancement will
help operators move to higher levels of performance with less
environmental impact. Zero-D formulation is designed to be used with
Halliburton's most popular fracturing fluid systems, including
SilverStim(TM), Delta Frac(TM), DeepQuest(TM), and SeaQuest(TM)
fluids, and is applicable over a broad range of depths and
temperatures in virtually any formation where fracturing can help
improve production.
* WellDynamics and BP have signed a multi-well contract to provide
SmartWell(R) downhole flow control and ancillary completion equipment
for managing water injection in BP's deepwater Greater Plutonio
development in Angola. The project will require some 40 wells with
approximately equal numbers of oil production wells and water
injection wells. The water injection wells will provide reservoir
pressure support and sweep efficiency to assist optimal reserve
recovery. Three additional gas injection wells will be used for
reservoir pressure support and to dispose of associated gas
production.
* Landmark released its commercial version of DecisionSpace(R) Nexus(TM)
software, a breakthrough technology developed in collaboration with BP
that is designed to perform reservoir simulation on both simple and
complex reservoirs at unprecedented speed. This next generation
technology gives reservoir engineers and asset teams a productivity
tool that, on average, enables reservoir simulation five times faster
than existing technology. This increased processing speed, along with
easy data transfer and streamlined workflows, improves productivity.
In addition, the ability to simulate the surface and subsurface
simultaneously creates a much more accurate representation of their
asset, assisting in better, more confident decisions.
KBR new contract awards:
* Yemen LNG Company Ltd. has awarded KBR and its joint venture partners,
Technip of France and JGC Corporation of Japan, a lump-sum turnkey
contract valued at more than $2.0 billion to provide engineering,
procurement, construction, pre-commissioning, commissioning, start-up,
and operations services for Yemen's first liquefied natural gas (LNG)
plant. Consisting of two liquefaction trains with a combined capacity
of 6.7 million tons per year, the LNG plant will be located in the
port of Balhaf on the southern coast of Yemen. The target for start-up
of Train 1 is the end of 2008, with Train 2 due to come on-line
approximately five months later.
* KBR and JGC Corporation signed a letter of intent with Qatar Shell GTL
Limited, a Royal Dutch Shell plc subsidiary, for project management of
the Pearl gas-to-liquids (GTL) project in Ras Laffan, Qatar, to a
joint venture between JGC and KBR. In addition to the development of
offshore upstream gas production facilities, Shell's Pearl GTL project
includes developing an onshore GTL plant that will produce 140,000
barrels per day of GTL products and about 100,000 barrels of oil
equivalent per day of natural gas liquids.
Halliburton, founded in 1919, is one of the world's largest providers of products and services to the petroleum and energy industries. The company serves its customers with a broad range of products and services through its Energy Services Group and KBR. The company's World Wide Web site can be accessed at http://www.halliburton.com .
NOTE: The statements in this press release that are not historical statements, including statements regarding future financial performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: the outcome of and the publicity surrounding audits and investigations of the company by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies; contract disputes with the company's customers; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements, particularly those related to radioactive sources, explosives and chemicals; compliance with laws related to income taxes; unsettled political conditions, war and the effects of terrorism, foreign operations and foreign exchange rates and controls; weather-related issues including the effects of hurricanes and tropical storms; changes in capital spending by, and claims negotiations with, customers; changes in the demand for or price of oil and/or gas, structural changes in the industries in which the company operates, and performance of fixed-fee projects; the development and installation of financial systems; increased competition for employees; and integration of acquired businesses, operations of joint venture, and completion of planned dispositions. Halliburton's Form 10-K for the year ended December 31, 2004, Form 10-Q for the period ended June 30, 2005, recent Current Reports on Forms 8-K, and other Securities and Exchange Commission filings discuss some of the important risk factors identified that may affect the business, results of operations and financial condition. Halliburton undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Millions of dollars and shares except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
September 30 June 30
2005 2004 2005
Revenue:
Production Optimization $ 1,107 $ 886 $ 1,046
Fluid Systems 731 618 699
Drilling and Formation Evaluation 588 450 566
Digital and Consulting Solutions 171 154 160
Total Energy Services Group 2,597 2,108 2,471
Government and Infrastructure 1,884 1,993 2,039
Energy and Chemicals 614 689 653
Total KBR 2,498 2,682 2,692
Total revenue $ 5,095 $ 4,790 $ 5,163
Operating income (loss):
Production Optimization $ 263 $ 222 $ 245
Fluid Systems 139 113 135
Drilling and Formation Evaluation 129 62 126
Digital and Consulting Solutions 35 17 16
Total Energy Services Group 566 414 522
Government and Infrastructure 149 (6) 73
Energy and Chemicals 1 (44) 49
Total KBR 150 (50) 122
General corporate (26) (22) (37)
Total operating income 690 342 607
Interest expense (51) (51) (51)
Interest income 17 13 9
Foreign currency, net (2) 1 (7)
Other, net (2) (2) (3)
Income from continuing operations
before income taxes and minority
interest 652 303 555
Provision for income taxes (132) (111) (154)
Minority interest in net income
of subsidiaries (21) (6) (10)
Income from continuing operations 499 186 391
Income (loss) from discontinued
operations, net --- (230) 1
Net income (loss) $ 499 $ (44) $ 392
Basic income (loss) per share:
Income from continuing operations $ 0.99 $ 0.43 $ 0.78
Income (loss) from discontinued
operations, net --- (0.54) ---
Net income (loss) $ 0.99 $(0.11) $ 0.78
Diluted income (loss) per share:
Income from continuing operations $ 0.95 $ 0.42 $ 0.76
Income (loss) from discontinued
operations, net --- (0.51) ---
Net income (loss) $ 0.95 $(0.09) $ 0.76
Basic weighted average common
shares outstanding 506 438 503
Diluted weighted average common
shares outstanding 525 442 513
See Footnote Table 1 for a list of significant items included in
operating income.
HALLIBURTON COMPANY
Condensed Consolidated Statements of Operations
(Millions of dollars and shares except per share data)
(Unaudited)
Nine Months Ended
September 30
2005 2004
Revenue:
Production Optimization $ 3,053 $ 2,391
Fluid Systems 2,061 1,707
Drilling and Formation Evaluation 1,643 1,317
Digital and Consulting Solutions 495 413
Total Energy Services Group 7,252 5,828
Government and Infrastructure 6,014 7,098
Energy and Chemicals 1,930 2,339
Total KBR 7,944 9,437
Total revenue $15,196 $15,265
Operating income (loss):
Production Optimization $ 799 $ 425
Fluid Systems 387 250
Drilling and Formation Evaluation 335 164
Digital and Consulting Solutions 80 60
Total Energy Services Group 1,601 899
Government and Infrastructure 275 75
Energy and Chemicals 102 (417)
Total KBR 377 (342)
General corporate (95) (66)
Total operating income 1,883 491
Interest expense (154) (160)
Interest income 38 30
Foreign currency, net (9) (9)
Other, net (7) 2
Income from continuing operations before
income taxes and minority interest 1,751 354
Provision for income taxes (455) (131)
Minority interest in net income of subsidiaries (39) (19)
Income from continuing operations 1,257 204
Loss from discontinued operations, net (1) (980)
Net income (loss) $ 1,256 $ (776)
Basic income (loss) per share:
Income from continuing operations $ 2.50 $ 0.47
Loss from discontinued operations, net --- (2.25)
Net income (loss) $ 2.50 $(1.78)
Diluted income (loss) per share:
Income from continuing operations $ 2.44 $ 0.46
Loss from discontinued operations, net --- (2.22)
Net income (loss) $ 2.44 $(1.76)
Basic weighted average common shares
outstanding 503 437
Diluted weighted average common shares
outstanding 516 441
See Footnote Table 1 for a list of significant items included in
operating income.
HALLIBURTON COMPANY
Condensed Consolidated Balance Sheets
(Millions of dollars)
(Unaudited)
September 30 June 30 December 31
2005 2005 2004
Assets
Current assets:
Cash and marketable securities $ 2,124 $ 1,575 $ 2,808
Receivables, net 4,173 4,280 4,685
Inventories, net 962 931 791
Insurance for asbestos- and
silica-related liabilities 193 91 1,066
Other current assets 1,039 1,090 680
Total current assets 8,491 7,967 10,030
Property, plant, and equipment, net 2,602 2,550 2,553
Insurance for asbestos- and
silica-related liabilities 201 301 350
Other assets 2,401 2,398 2,931
Total assets $13,695 $13,216 $15,864
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,714 $ 1,871 $ 2,339
Current maturities of long-term debt 651 374 347
Asbestos- and silica-related liabilities --- --- 2,408
Other current liabilities 1,867 1,927 2,038
Total current liabilities 4,232 4,172 7,132
Long-term debt 2,821 3,103 3,593
Asbestos- and silica-related liabilities --- --- 37
Other liabilities 1,162 1,133 1,062
Total liabilities 8,215 8,408 11,824
Minority interest in consolidated
subsidiaries 133 113 108
Shareholders' equity 5,347 4,695 3,932
Total liabilities and
shareholders' equity $13,695 $13,216 $15,864
Note -- Certain prior period amounts have been reclassified to be
consistent with the current presentation.
HALLIBURTON COMPANY
Selected Cash Flow Information
(Millions of dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
Capital expenditures:
Energy Services Group $ 164 $ 122 $ 424 $ 356
KBR 21 16 50 66
Total capital expenditures $ 185 $ 138 $ 474 $ 422
Depreciation, depletion,
and amortization:
Energy Services Group $ 111 $ 105 $ 333 $ 335
KBR 14 13 44 39
Total depreciation, depletion,
and amortization $ 125 $ 118 $ 377 $ 374
HALLIBURTON COMPANY
Revenue and Operating Income Comparison
By Geographic Region - Energy Services Group Only
(Millions of dollars)
(Unaudited)
Three Months Ended Three Months Ended
September 30 June 30
2005 2004 2005
Revenue:
North America $ 1,270 $ 969 $ 1,137
Latin America 324 295 333
Europe/Africa/CIS 589 510 565
Middle East/Asia 414 334 436
Total revenue $ 2,597 $ 2,108 $ 2,471
Operating income:
North America $ 347 $ 228 $ 289
Latin America 40 52 39
Europe/Africa/CIS 101 88 105
Middle East/Asia 78 46 89
Total operating income $ 566 $ 414 $ 522
Nine Months Ended
September 30
2005 2004
Revenue:
North America $ 3,466 $ 2,629
Latin America 971 781
Europe/Africa/CIS 1,617 1,407
Middle East/Asia 1,198 1,011
Total revenue $ 7,252 $ 5,828
Operating income:
North America $ 989 $ 498
Latin America 125 118
Europe/Africa/CIS 268 150
Middle East/Asia 219 133
Total operating income $ 1,601 $ 899
HALLIBURTON COMPANY
Backlog Information
(Millions of dollars)
(Unaudited)
September 30 June 30 December 31
2005 2005 2004
Firm orders:
Government and Infrastructure $ 3,548 $ 3,556 $ 3,968
Energy and Chemicals 6,809 (A) 6,182 3,643
Energy Services Group segments 172 179 64
Total $10,529 $ 9,917 $ 7,675
Government orders firm but not yet
funded, letters of intent, and
contracts awarded but not signed:
Government and Infrastructure $ 3,942 $ 4,842 (B) $ 816
Total backlog $14,471 $14,759 $ 8,491
(A) Backlog related to gas monetization projects, which include
liquefied natural gas and gas-to-liquids projects, amounted to $3.8
billion of the $6.8 billion of Energy and Chemicals backlog as of
September 30, 2005.
(B) Increase primarily relates to Task Order No. 89 under the LogCAP
contract.
HALLIBURTON COMPANY
Award Fee and Other Information on LogCAP & RIO Iraq-Related Contracts
(Millions of dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
Award fee adjustment (A) $ --- $ 51
Change in estimated accrual
rate of award fees (B) $ 4 $ 14
Settlement of disputed cost issues,
primarily related to fuel $ 24 $ 24
(A) The amounts initially accrued for award fees are adjusted to actual
amounts earned once the award fees have been granted and the task
orders underlying the work are definitized. The actual amounts
granted were $27 million in the first quarter of 2005, $72 million
in the second quarter of 2005, and $68 million in the third quarter
of 2005. Through March 31, 2005, award fees not yet granted were
accrued at 50% of the maximum award fee.
(B) Effective April 1, 2005, LogCAP award fees not yet granted are
accrued at 72% of the maximum award fee.
FOOTNOTE TABLE 1
HALLIBURTON COMPANY
Items included in Operating Income by Operating Segment
(Millions of dollars except per share data)
(Unaudited)
Three Months Ended Three Months Ended Three Months Ended
September 30, 2005 September 30, 2004 June 30, 2005
Operating After Tax Operating After Tax Operating After Tax
Income per Share Income per Share Income per Share
Production
Optimization:
Surface well
testing gain
on sale $--- $--- $ 40 $ 0.06 $--- $---
Government and
Infrastructure:
Sale of
interest in
toll road 85 0.13 --- --- --- ---
Restructuring
charge --- --- (4) (0.01) --- ---
Energy and
Chemicals:
Restructuring
charge --- --- (14) (0.02) --- ---
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
Operating After Tax Operating After Tax
Income per Share (B) Income per Share
Production Optimization:
Subsea 7, Inc. gain
on sale (A) $ 110 $ 0.16 $ --- $ ---
Surface well testing
gain on sale --- --- 40 0.06
Digital and Consulting
Solutions:
Anglo-Dutch lawsuit --- --- 13 0.02
Government and Infrastructure:
Sale of interest in
toll road 85 0.12 --- ---
Restructuring charge --- --- (4) (0.01)
Energy and Chemicals:
Barracuda-Caratinga
project loss --- --- (407) (0.60)
Restructuring charge --- --- (14) (0.02)
(A) The nine months ended September 30, 2004 included a $7 million
equity loss contributed from Subsea 7, Inc.
(B) Amounts differ from quarter impact due to differences in the
effective tax rate between the individual quarter and the nine
months ended September 30, 2005.
FOOTNOTE TABLE 2
HALLIBURTON COMPANY
Items included in Operating Income
By Geographic Region - Energy Services Group Only
(Millions of dollars except per share data)
(Unaudited)
Three Months Ended Three Months Ended Three Months Ended
September 30, 2005 September 30, 2004 June 30, 2005
Operating After Tax Operating After Tax Operating After Tax
Income per Share Income per Share Income per Share
North America:
Surface well
testing gain
on sale $ --- $ --- $ 19 $0.03 $ --- $ ---
Latin America:
Surface well
testing gain
on sale --- --- 7 0.01 --- ---
Europe/Africa/CIS:
Surface well
testing gain
on sale --- --- 14 0.02 --- ---
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
Operating After Tax Operating After Tax
Income per Share Income per Share
North America:
Subsea 7, Inc. gain
on sale $107 $0.15 $--- $---
Surface well testing gain
on sale --- --- 19 0.03
Anglo-Dutch lawsuit --- --- 13 0.02
Latin America:
Surface well testing
gain on sale --- --- 7 0.01
Europe/Africa/CIS:
Subsea 7, Inc. gain on sale 3 0.01 --- ---
Surface well testing
gain on sale --- --- 14 0.02
FOOTNOTE TABLE 3
HALLIBURTON COMPANY
Reconciliation of As Reported Results to Adjusted Results
(Millions of dollars)
(Unaudited)
Total Energy Total
Services Total General Halliburton
Group KBR Corporate Company
Three Months Ended
September 30, 2005
As reported operating
income (loss) $ 566 $ 150 $ (26) $ 690
Sale of interest in
toll road (A) --- (85) --- (85)
Adjusted operating income
(loss) $ 566 $ 65 $ (26) $ 605
Three Months Ended
June 30, 2005 (B)
As reported operating
income (loss) $ 522 $ 122 $ (37) $ 607
(A) The Company is reporting strong operating income from both the
Energy Services Group and KBR. Management believes it is important
to point out to investors that a portion of operating income is
attributable to the sale of a toll road interest in the third
quarter of 2005, because investors have indicated to management
their desire to understand the current drivers and future trends of
operating income. The adjustment removes the effect of the sale of
the toll road interest.
(B) No reconciling items were noted for this period.
