Halliburton Company (



Q3 2010 Earnings Call

October 18, 2010 9:00 AM ET


Christian Garcia – Investor Relations

David Lesar – Chief Executive Officer

Mark McCollum – Chief Financial Officer

Tim Probert – President, Global Business Lines and Corporate Development


Angie Sedita – UBS

Brad Handler – Credit Suisse

Kurt Hallead – RBC Capital

Jim Crandell – Barclays

Jeff Tillery – Tudor Pickering

Ole Slorer – Morgan Stanley

Bill Herbert – Simons

Geoff Kieburtz – Weeden & Company

Dan Boyd – Goldman Sachs

Robin Shoemaker – Citi



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» Halliburton Company Q2 2010 Earnings Call Transcript
» Halliburton Company Q1 2010 Earnings Call Transcript
» Halliburton Company Q4 2009 Earnings Call Transcript
» Halliburton Company Q3 2009 Earnings Call Transcript

Good day, ladies and gentlemen. And welcome to Halliburton Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)

I would now like to turn the conference over to your host today, Christian Garcia.

Christian Garcia

Thank you, Sean. Good morning and welcome to the Halliburton third quarter 2010 conference call. Today’s call is being webcast and the replay will be available on Halliburton’s website for seven days. The press release announcing the third quarter results is available on the Halliburton website.

Joining me today are David Lesar, CEO; Mark McCollum, CFO; and Tim Probert, President, Global Business Lines and Corporate Development. In today’s call, Dave will provide opening remarks, Mark will discuss our overall financial performance and liquidity position, and Tim will provide comments on our operations. We will welcome questions after we complete our prepared remarks.

I would like to remind our audience that some of today’s comments may include forward-looking statements reflecting Halliburton’s views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results cause our actual results to differ from our forward-looking statements. These risks are discussed in Halliburton’s Form 10-K for the year ended December 31, 2009, Form 10-Q for the quarter ended June 30, 2010, and recent current reports on Form 8-K.

Our comments include non-GAAP financial measures and reconciliations of the most directly comparable GAAP financial measures are included in the press release announcing the third quarter results. Note that we will be using the term international to refer to our operations outside the U.S. and Canada, and we will refer to the combination of U.S. and Canada as North America. Dave?

David Lesar

Thank you, Christian, and good morning to everyone. We had another strong quarter. Our results, which by the way played out very close to how we thought they would, reflected the continuing strengthening of our North America business, as well as international market that basically treaded water in the third quarter.

Revenues of $4.7 billion, represented a 30% increase over the prior year as we leveraged our balanced geographic portfolio to successfully counteract the negative Q3 impact of several significant markets, like the Gulf of Mexico, Algeria and Mexico, where we believe that business conditions for most service companies were significantly worse than the second quarter, which of course, put pressure downward on our earnings.

Operating income grew 73% from the prior year, lead by a more than 10 fold increase in North American profitability.

Let me provide some more details starting with North America. North America had another outstanding quarter, sequential revenue and operating income increasing 13% and 30%, respectively, out pacing the U.S. rig count growth of 7%.

Incremental margins for the third quarter were 49% and North America margins increased to 24%, and we achieved this performance despite the very negative impact on revenue, operating income and incremental margins from the significant decline in our Gulf of Mexico business.

The continued growth in overall activity and corresponding increase in completions intensity provided us with an incremental opportunity to adjust pricing across all of our product service lines, lead of course by production enhancement.

Fracturing prices have continued to rise since the fourth quarter of 2009, but remember are still below 2008 levels. However, overall fracturing revenue per well has expanded driven by more complex stimulation treatments. It is important to recognize that by taking a leadership position and setting fracturing pricing, we likely got an initial jump in our competition in terms of margin performance in the second quarter and we believe that we’ve been able to maintain this leadership throughout Q3.

The shift to oil and liquids-rich plays has been persistent, stood by stable oil prices. We believe that this shift will continue as evidenced by operator interest in acquiring additional acreage in the oil and condensate basins that have out paced the dry gas regions.

We anticipate that incremental capital spending will continue to drive increased rig counts in oil, in liquids-rich plays like the Eagle Ford, Niobrara, Granite Wash, Bone Springs and other emerging basins in the Permian Basin over the next year and we are, of course, well positioned in these plays.

However, natural gas fundamentals remain weak and we believe will exert downward pressure on those dry gas directing and -- completion basins in the coming quarters. We strongly and continue to believe strongly in the long-term prospects of the North market.

Our footprint and integrated offerings give us a unique ability to experiment with new business models, customized to meet a wide range of customer economic thresholds. In certain dry gas basins, we are strategically working with a number of our key customers to improve their project economics by utilizing our drilling optimization technologies and workflows to drive a decrease in their total overall drilling and completion costs. For these customers, at the same time we are also moderating our price increases as we implement this model and are also committing to not move equipment from them to other locations to chase higher pricing.

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