Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
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:
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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.
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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.
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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 approximately
60,000
employees, we operate in more than
80
countries around the world, and our corporate headquarters are in Houston, Texas.
Financial results
We demonstrated solid execution in the second quarter of 2019 against the backdrop of a volatile commodity pricing environment. We generated total company revenue of
$5.9 billion
during the
second
quarter of
2019
, a 4% decrease as compared to the second quarter of 2018. Total company operating income was
$303 million
during the
second
quarter of
2019
, which included $247 million of impairments and other charges, compared to operating income of
$789 million
in the
second
quarter of
2018
. Our Completion and Production segment revenue decreased 9% from the
second
quarter of
2018
, primarily driven by lower activity and pricing for stimulation services in North America, while our Drilling and Evaluation segment revenue increased
7
% from the
second
quarter of
2018
, with activity improvements across all international geographic regions. We continue to build on the growth momentum internationally and are successfully managing the market dynamics in North America.
Our North America revenue decreased 13% in the
second
quarter of
2019
, as compared to the
second
quarter of
2018
, primarily driven by lower activity and pricing for stimulation services in U.S. land, partially offset by higher artificial lift and well construction activity. However, compared to the first quarter of 2019, our revenue increased 2% as we experienced a modest improvement in hydraulic fracturing activity combined with stable pricing. During the second quarter of 2019, we also more efficiently utilized our equipment and have taken steps to reduce operating costs, which yielded higher operating margins in our Completion and Production segment.
Revenue in our international markets increased 13% in the
second
quarter of
2019
, as compared to the
second
quarter of
2018
, resulting primarily from higher completion tool sales across all international regions, increased well construction services in Europe/Africa/CIS, and activity improvements for the majority of our product service lines in Mexico. We continue to see a broad-based recovery across numerous international geographies, primarily driven by land and shallow water operations.
Business outlook
Our industry is going through a transformation brought on by the shale revolution and the recent down-cycle. The industry has removed substantial costs from the system and introduced significant efficiencies. Many of our customers in North America have shifted their strategy from production growth to operating within cash flow and generating returns. These customers are focused on maximizing production per every dollar of capital spending, and technology that can improve well productivity will be key to their success. We believe we are well positioned to assist our customers achieve this through our value proposition of collaborating with them to engineer solutions that deliver the lowest cost per barrel.
In North America, while we experienced a modest improvement in hydraulic fracturing activity from the first quarter to the second quarter of 2019, we expect activity reductions in the second half of the year. Our customers remain focused on staying within their capital spending budgets and some customers are expected to slow down and scale back their completion programs for the rest of the year. We anticipate this slow down to be more pronounced in gas basins due to persisting lower gas prices. In light of expected softness in activity, we have been taking certain measures to continue to drive growth in our North America business and have been taking steps to reduce operating costs in this market. For example, we recently restructured our North American organization, removing several layers of management, which has changed our cost profile and increased our market responsiveness. We will continue to evaluate cost reduction opportunities across the company, and we intend to manage and adjust the size of our North America operations for the market environment.
Internationally, momentum continues to build and we expect activity improvement to continue in 2020. Pricing is trending upward as equipment supply and demand balance tightens in various geographies, and we have the footprint and the expanded technology portfolio to capitalize on this international growth. Our business in the North Sea has been busy, and we have significantly increased our market penetration in this area. We see similar dynamics in the Asia Pacific markets, with Malaysia, Australia and India all showing strong activity growth, and increased activity should lead to better pricing dynamics. We also anticipate growth in the broader offshore market. In June 2019, the year-over-year change in the monthly offshore rig count was up for the twelfth consecutive month and appears to be gaining momentum. Over the last decade, we have taken strategic actions that have increased the number and type of markets in which we can compete. These actions include substantial investments to grow our international footprint, where we increased our product service line presence in various geographies, expanded our manufacturing capacity in Singapore, and opened technology centers in Saudi Arabia, India and Brazil. In addition, we made strategic investments and closed technology gaps in the product service lines that are critical to our success in international markets. All of these efforts provide us with a strong base to capitalize on the international recovery.
During the first half of
2019
, we had
$845 million
of capital expenditures, a decrease of 21% from the first half of 2018, as we adjusted to market conditions. These capital expenditures were predominantly in our
Sperry Drilling
,
Production Enhancement
,
Wireline and Perforating
,
Artificial Lift
, and
Production Solutions
product service lines. We expect our full year 2019 capital expenditures will be $1.6 billion, a 20% decrease from 2018, with the majority of the reduction coming from North America. The capital that we spend this year in the U.S. is mostly directed towards increasing efficiency, reducing emissions and investing in new technologies.
We intend to continue to strengthen our product service lines through a combination of organic growth, investment and selective acquisitions. We plan to continue executing the following strategies through the end of 2019:
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directing capital and resources that differentiate our service and product offerings into strategic markets around the world;
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collaborating and engineering solutions to maximize asset value for our customers;
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leveraging our broad technology offerings to provide value to our customers and enable them to more efficiently drill and complete their wells;
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investing in technology that will help our customers reduce reservoir uncertainty, increase operational efficiency and improve well productivity;
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improving working capital and managing our balance sheet to maximize our financial flexibility;
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seeking additional 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; and
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striving to achieve superior returns and cash flow generation for our shareholders.
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Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations.”
Financial markets, liquidity, and capital resources
We believe we have invested our cash balances conservatively and secured sufficient financing to help mitigate any near-term negative impact on our operations from adverse market conditions. As of
June 30, 2019
, we had
$1.2 billion
of cash and equivalents and
$3.5 billion
of available committed bank credit under our revolving credit facility. We believe this provides us with sufficient liquidity to address the challenges and opportunities of the current market. For additional information on market conditions, see “Liquidity and Capital Resources” and “Business Environment and Results of Operations.”
LIQUIDITY AND CAPITAL RESOURCES
As of
June 30, 2019
, we had
$1.2 billion
of cash and equivalents, compared to
$2.0 billion
of cash and equivalents at December 31, 2018.
Significant sources and uses of cash during the first
six
months of
2019
Sources of cash
- Cash flows from operating activities were
$407 million
. This included a negative impact from the primary components of our working capital (receivables, inventories and accounts payable) of a net
$755 million
, primarily associated with what we expect are short-term changes related to customer payment delays and a build-up of inventory related to our strategic technology deployments.
Uses of cash
- Capital expenditures were
$845 million
and were predominantly made in our
Sperry Drilling
,
Production Enhancement
,
Wireline and Perforating
,
Artificial Lift
, and
Production Solutions
product service lines.
- We paid
$314 million
in dividends to our shareholders.
- We repurchased approximately
4.5 million
shares of our common stock under our share repurchase program at a total cost of
$100 million
.
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
2019
is currently expected to be approximately $1.6 billion, a decrease of 20% from 2018, as we remain committed to maintaining capital discipline.
Currently, our quarterly dividend rate is
$0.18
per common share, or approximately
$157 million
. Subject to Board of Directors approval, our intention is to continue paying dividends at our current rate during
2019
. Our Board of Directors has authorized a program to repurchase our common stock from time to time. Approximately
$5.2 billion
remained authorized for repurchases as of
June 30, 2019
and may be used for open market and other share purchases.
Other factors affecting liquidity
Financial position in current market.
As of
June 30, 2019
, we had
$1.2 billion
of cash and equivalents and
$3.5 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 the challenges and opportunities of the current market and our global cash needs, 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
$2.1 billion
of letters of credit, bank guarantees or surety bonds were outstanding as of
June 30, 2019
. 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, though S&P changed the outlook for our debt from stable to negative during the second quarter of 2019. 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.
BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS
We operate in more than
80
countries throughout the world to provide a comprehensive range of services and products to the energy industry. A significant amount of our consolidated revenue is derived from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. The industry we serve is highly competitive with many substantial competitors in each segment of our business. During the first six months of
2019
, based upon the location of the services provided and products sold,
54%
of our consolidated revenue was from the United States, compared to
59%
of consolidated revenue from the United States in the first six months of 2018.
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 an interruption 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 and our customers' expectations about future prices, global oil supply and demand, completions intensity, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling and completions activity. Additionally, many of our customers in North America have shifted their strategy from production growth to operating within cash flow and generating returns. 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 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:
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Three Months Ended
June 30
|
Year Ended
December 31
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2019
|
2018
|
2018
|
Oil price - WTI
(1)
|
$
|
59.77
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|
$
|
68.03
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|
$
|
64.94
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Oil price - Brent
(1)
|
68.92
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|
74.50
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|
71.08
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|
Natural gas price - Henry Hub
(2)
|
2.56
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|
2.86
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|
3.17
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(1)
Oil price measured in dollars per barrel
(2)
Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu
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The historical average rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:
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Three Months Ended
June 30
|
Six Months Ended
June 30
|
|
2019
|
2018
|
2019
|
2018
|
U.S. Land
|
967
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|
1,021
|
|
994
|
|
986
|
|
U.S. Offshore
|
22
|
|
18
|
|
22
|
|
17
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|
Canada
|
82
|
|
108
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|
132
|
|
188
|
|
North America
|
1,071
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|
1,147
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|
1,148
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|
1,191
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|
International
|
1,109
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|
968
|
|
1,069
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|
969
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|
Worldwide total
|
2,180
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|
2,115
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|
2,217
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|
2,160
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Crude oil prices have been extremely volatile over the past five 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. Since the low point experienced in early 2016, oil prices increased substantially, with WTI oil spot prices reaching a high of $77 per barrel in June 2018. In late 2018, oil prices again declined with WTI oil spot prices reaching a low of $44 per barrel in December, but have since risen to a high of $66 per barrel in April 2019 while averaging
$60
per barrel during the
second
quarter of 2019.
In the United States Energy Information Administration (EIA) July 2019 "Short Term Energy Outlook," the EIA projects Brent prices to average $67 per barrel in the second half of 2019 and remain at that level in 2020, while WTI prices are projected to average $62 per barrel in the second half of 2019 and $63 per barrel in 2020. Crude oil production in the United States is now projected to average 12.4 million barrels per day in 2019, a 13% increase from 2018. Additionally, the EIA projects that U.S. production will increase 7% in 2020 to an average of 13.3 million barrels per day. The International Energy Agency's (IEA) July 2019 "Oil Market Report" forecasts the 2019 global demand to average approximately 100.3 million barrels per day, which is down from their April 2019 projection of 100.6 million barrels per day reflecting expectations of weakening demand, but up 1.2% from 2018 demand, driven by an increase in the Asia Pacific region, while all other regions remain approximately the same.
The Henry Hub natural gas spot price averaged
$2.56
per MMBtu in the
second
quarter of 2019, a decrease of $0.30 per MMBtu, or 10%, from the
second
quarter of 2018. The EIA July 2019 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.50 per MMBtu in the second half of 2019 and $2.77 per MMBtu in 2020.
North America operations
During the
second
quarter of 2019, the average United States land rig count decreased 5%, as compared to the
second
quarter of 2018. However, we experienced a modest improvement in hydraulic fracturing activity combined with stable pricing from the first quarter to the second quarter of 2019. We expect activity reductions in the second half of 2019 as customers remain focused on staying within their capital spending budgets with some customers expected to slow down and scale back their completion programs for the rest of the year. We anticipate this slow down to be more pronounced in gas basins due to persisting lower gas prices. Overall, we expect customer spending for the full year 2019 to decrease in North America as compared to 2018.
International operations
The average international rig count for the
second
quarter of 2019 was up 15% compared to the
second
quarter of 2018. We continue to see a broad-based recovery across numerous international geographies, primarily driven by land and shallow water operations. Momentum continues to build internationally and we expect activity improvement to continue in 2020. Pricing is trending upward as equipment supply and demand balance tightens in various geographies. 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.
As we have previously disclosed, the general license issued by the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury, which allows us to continue operating in Venezuela despite OFAC sanctions imposed against the Venezuelan energy industry, will expire on July 27, 2019. Consequently, unless OFAC extends the term of the general license, we will cease operations in Venezuela on that date in order to comply with the sanctions. In that event, it is unlikely that we will be able to remove our assets that remain in Venezuela and those assets may be expropriated. Since we have previously written down all of our investment in Venezuela and have maintained limited operations in this country during the general license period, we do not expect the expiration of the license to have a material adverse effect on our business, consolidated results of operations and consolidated financial condition.
RESULTS OF OPERATIONS IN
2019
COMPARED TO
2018
Three Months Ended
June 30, 2019
Compared with
Three Months Ended
June 30, 2018
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Revenue:
|
Three Months Ended
June 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2019
|
2018
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
3,805
|
|
$
|
4,164
|
|
$
|
(359
|
)
|
(9
|
)%
|
Drilling and Evaluation
|
2,125
|
|
1,983
|
|
142
|
|
7
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|
Total revenue
|
$
|
5,930
|
|
$
|
6,147
|
|
$
|
(217
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)
|
(4
|
)%
|
|
|
|
|
|
By geographic region:
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|
North America
|
$
|
3,327
|
|
$
|
3,834
|
|
$
|
(507
|
)
|
(13
|
)%
|
Latin America
|
571
|
|
479
|
|
92
|
|
19
|
|
Europe/Africa/CIS
|
823
|
|
726
|
|
97
|
|
13
|
|
Middle East/Asia
|
1,209
|
|
1,108
|
|
101
|
|
9
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|
Total revenue
|
$
|
5,930
|
|
$
|
6,147
|
|
$
|
(217
|
)
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating income (loss):
|
Three Months Ended
June 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2019
|
2018
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
470
|
|
$
|
669
|
|
$
|
(199
|
)
|
(30
|
)%
|
Drilling and Evaluation
|
145
|
|
191
|
|
(46
|
)
|
(24
|
)
|
Total
|
615
|
|
860
|
|
(245
|
)
|
(28
|
)
|
Corporate and other
|
(65
|
)
|
(71
|
)
|
6
|
|
8
|
|
Impairments and other charges
|
(247
|
)
|
—
|
|
(247
|
)
|
—
|
|
Total operating income
|
$
|
303
|
|
$
|
789
|
|
$
|
(486
|
)
|
(62
|
)%
|
Consolidated revenue was
$5.9 billion
in the
second
quarter of
2019
, a decrease of
$217 million
, or
4%
, as compared to the
second
quarter of
2018
. Consolidated operating income was
$303 million
during the
second
quarter of
2019
, a
62%
decrease from operating income of
$789 million
in the
second
quarter of
2018
. This decline was primarily driven by lower activity and pricing for stimulation services in U.S. land, partially offset by increased well construction activity globally, higher completion tool sales in Middle East/Asia, and increased artificial lift activity in U.S. land. Operating results were also impacted by
$247 million
of impairments and other charges during the
second
quarter of 2019. See
Note 2
to the condensed consolidated financial statements for further discussion on these charges. Revenue from North America was
56%
of consolidated revenue in the
second
quarter of
2019
, compared to
62%
of consolidated revenue in the
second
quarter of
2018
.
OPERATING SEGMENTS
Completion and Production
Completion and Production revenue in the
second
quarter of
2019
was
$3.8 billion
, a decrease of
$359 million
, or
9%
, from the
second
quarter of
2018
. Operating income in the
second
quarter of
2019
was
$470 million
, a decrease of
$199 million
, or
30%
, from the
second
quarter of
2018
. These decreases were primarily driven by lower activity and pricing for stimulation services in U.S. land, partially offset by higher completion tool sales and cementing activity globally and increased artificial lift activity in U.S. land.
Drilling and Evaluation
Drilling and Evaluation revenue in the
second
quarter of
2019
was $
2.1 billion
, an increase of
$142 million
, or
7
%, from the
second
quarter of
2018
, primarily related to higher wireline activity globally. We also experienced activity improvements across all international geographic regions. Operating income in the
second
quarter of
2019
was
$145 million
, a decrease of
$46 million
, or
24
%, compared to the
second
quarter of
2018
, resulting primarily from reduced profitability for drilling-related services and project management services globally as a result of mobilization costs and lower pricing.
GEOGRAPHIC REGIONS
North America
North America revenue in the
second
quarter of
2019
was $
3.3 billion
, a
13%
decrease compared to the
second
quarter of
2018
. These results were primarily driven by lower activity and pricing for stimulation services in U.S. land, partially offset by higher artificial lift and well construction activity.
Latin America
Latin America revenue in the
second
quarter of
2019
was $
571 million
, a
19
% increase compared to the
second
quarter of
2018
, resulting primarily from higher activity for the majority of our product service lines in Mexico, increased completion tool sales in Brazil, and increased well construction services in Argentina. These results were partially offset by reduced cementing and fluids activity in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the
second
quarter of
2019
was $
823 million
, a
13
% increase compared to the
second
quarter of
2018
, primarily driven by increased well construction services across the region and higher activity across multiple product service lines in the North Sea.
Middle East/Asia
Middle East/Asia revenue in the
second
quarter of
2019
was $
1.2 billion
, a
9%
increase compared to the
second
quarter of
2018
, largely resulting from increased completion tool sales across the region, higher stimulation activity in the Middle East, and increased wireline and drilling activity in Asia Pacific. Partially offsetting these increases were lower drilling-related services and project management activity in the Middle East.
OTHER OPERATING ITEMS
Impairments and other charges
were
$247 million
in the
second
quarter of
2019
, primarily related to asset impairments and severance costs. See
Note 2
to the condensed consolidated financial statements for further discussion on the second quarter charges. There were no such charges in the
second
quarter of 2018.
NONOPERATING ITEMS
Effective tax rate
. During the three months ended
June 30, 2019
, we recorded a total income tax provision of $
74 million
on pre-tax income of $
151 million
, resulting in an effective tax rate of 48.5%. Our effective tax rate during the second quarter of 2019 was significantly impacted by the
$247 million
in pre-tax impairments and other charges recorded during the period as we did not recognize a corresponding financial statement tax benefit for the majority of these charges. During the three months ended
June 30, 2018
, we recorded a total income tax provision of $
125 million
on pre-tax income of $
633 million
, resulting in an effective tax rate of 19.8%. Our effective tax rates for both periods were also impacted by the geographic mix of earnings during the respective periods.
Six Months Ended
June 30, 2019
Compared with
Six Months Ended
June 30, 2018
|
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|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
Six Months Ended
June 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2019
|
2018
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
7,467
|
|
$
|
7,971
|
|
$
|
(504
|
)
|
(6
|
)%
|
Drilling and Evaluation
|
4,200
|
|
3,916
|
|
284
|
|
7
|
|
Total revenue
|
$
|
11,667
|
|
$
|
11,887
|
|
$
|
(220
|
)
|
(2
|
)%
|
|
|
|
|
|
By geographic region:
|
|
|
|
|
North America
|
$
|
6,602
|
|
$
|
7,351
|
|
$
|
(749
|
)
|
(10
|
)%
|
Latin America
|
1,158
|
|
936
|
|
222
|
|
24
|
|
Europe/Africa/CIS
|
1,571
|
|
1,442
|
|
129
|
|
9
|
|
Middle East/Asia
|
2,336
|
|
2,158
|
|
178
|
|
8
|
|
Total revenue
|
$
|
11,667
|
|
$
|
11,887
|
|
$
|
(220
|
)
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
Six Months Ended
June 30
|
Favorable
|
Percentage
|
Millions of dollars
|
2019
|
2018
|
(Unfavorable)
|
Change
|
Completion and Production
|
$
|
838
|
|
$
|
1,169
|
|
$
|
(331
|
)
|
(28
|
)%
|
Drilling and Evaluation
|
268
|
|
379
|
|
(111
|
)
|
(29
|
)
|
Total
|
1,106
|
|
1,548
|
|
(442
|
)
|
(29
|
)
|
Corporate and other
|
(130
|
)
|
(140
|
)
|
10
|
|
7
|
|
Impairments and other charges
|
(308
|
)
|
(265
|
)
|
(43
|
)
|
(16
|
)
|
Total operating income
|
$
|
668
|
|
$
|
1,143
|
|
$
|
(475
|
)
|
(42
|
)%
|
Consolidated revenue was
$11.7 billion
in the first
six
months of
2019
, a decrease of
$220 million
, or
2%
, as compared to the first
six
months of
2018
. Consolidated operating income was
$668 million
in the first
six
months of
2019
, a
42%
decrease from operating income of
$1.1 billion
during the first
six
months of
2018
. This decline was primarily driven by lower activity and pricing for stimulation services in U.S. land, partially offset by increased well construction activity globally, increased artificial lift activity in U.S. land, and higher completion tool sales internationally. Operating results in the first
six
months of 2019 were also impacted by
$308 million
of impairments and other charges, while operating results in the
six
months of 2018 included
$265 million
of impairments and other charges related to Venezuela. See
Note 2
to the condensed consolidated financial statements for further discussion on these charges. Revenue from North America was
57%
of consolidated revenue in the first
six
months of
2019
, compared to
62%
of consolidated revenue in the first
six
months of
2018
.
OPERATING SEGMENTS
Completion and Production
Completion and Production revenue in the first
six
months of
2019
was
$7.5 billion
, a decrease of
$504 million
, or
6%
, compared to the first
six
months of
2018
. Operating income in the first
six
months of
2019
was
$838 million
, a decrease of
$331 million
, or
28%
, compared to the first
six
months of
2018
. These results were primarily driven by lower activity and pricing for stimulation services in U.S. land, partially offset by higher completion tool sales and cementing activity globally, increased artificial lift activity in U.S. land, and increased stimulation activity in Latin America.
Drilling and Evaluation
Drilling and Evaluation revenue in the first
six
months of
2019
was
$4.2 billion
, an increase of
$284 million
, or
7%
, compared to the first
six
months of
2018
, primarily related to higher wireline activity globally and increased project management activity in India and Latin America. We also experienced activity improvements across all geographic regions. Operating income in the first
six
months of
2019
was
$268 million
, a decrease of
$111 million
, or
29%
, compared to the first
six
months of
2018
, resulting primarily from reduced profitability for drilling-related services globally and project management services in the Middle East as a result of mobilization costs and lower pricing.
GEOGRAPHIC REGIONS
North America
North America revenue in the first
six
months of
2019
was
$6.6 billion
, a
10%
decrease compared to the first
six
months of
2018
. These results were driven by lower activity and pricing for stimulation services in U.S. land, partially offset by higher artificial lift and well construction activity.
Latin America
Latin America revenue in the first
six
months of
2019
was
$1.2 billion
, a
24%
increase compared to the first
six
months of
2018
, resulting primarily from higher activity for the majority of our product service lines in Mexico and Argentina, increased completion tool sales in Brazil, and higher project management activity in Ecuador. These results were partially offset by reduced cementing and fluids activity in Brazil.
Europe/Africa/CIS
Europe/Africa/CIS revenue in the first
six
months of
2019
was
$1.6 billion
, a
9%
increase from the first
six
months of
2018
, primarily due to increased well construction services across the region and higher activity across multiple product service lines in the North Sea and Israel.
Middle East/Asia
Middle East/Asia revenue in the first
six
months of
2019
was
$2.3 billion
, an
8%
increase from the first
six
months of
2018
, primarily resulting from increased completion tool sales and cementing activity throughout the region, higher stimulation activity in the Middle East, improved wireline activity in Asia Pacific, and increased project management activity in India. These results were partially offset by reduced project management and fluids activity in the Middle East.
OTHER OPERATING ITEMS
Impairments and other charges
were
$308 million
in the
six
months ended
June 30, 2019
, primarily related to asset impairments and severance costs. This compares to $
265 million
of charges in the
six
months ended
June 30, 2018
, representing a write-down of all of our remaining investment in Venezuela. See
Note 2
to the condensed consolidated financial statements for further discussion on these charges.
NONOPERATING ITEMS
Effective tax rate
. During the
six
months ended
June 30, 2019
, we recorded a total income tax provision of
$114 million
on pre-tax income of
$343 million
, resulting in an effective tax rate of 33.0%. During the
six
months ended
June 30, 2018
, we recorded a total income tax provision of
$267 million
on pre-tax income of
$822 million
, resulting in an effective tax rate of 32.5%. Our effective tax rate for these periods were significantly impacted by the impairments and other charges recorded during the respective periods as we did not recognize a corresponding financial statement tax benefit for the majority of these charges. Additionally, our effective tax rate for both periods were impacted by a geographic mix of earnings during 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 8
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.